Investors should be extra cautious when it comes to the super high-yielders out there, especially if we’re talking about securities that have entered double-digit percentage territory!
Undoubtedly, the higher the yield, the higher the potential downside risks tend to be. But with the rise of various high-yield ETFs, many of which also add a layer of premium income via the writing of covered calls, there is a way to get an extra jolt of passive income at the cost of potential upside (covered calls tend to cap upside) rather than additional downside risk.
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Understand the pros and cons of covered call ETFs!
Of course, when it comes to some covered-call ETFs, investors should be aware of the full slate of risks to both the upside and the downside. And while covered call ETFs and other specialty income ETFs that incorporate options strategies can be difficult to understand at first, especially for a market newcomer who only recently got started investing, I do think that, in relatively small doses, they can make sense to average up your overall portfolio’s yield.
There’s no excuse for not understanding the full inner workings of some of the more intensive ETFs out there, especially the ones that combine intriguing strategies rather than passively holding a basket of stocks in some sector of the market.
In any case, this piece will focus on a covered call sector ETF that’s performed quite well lately. Indeed, if you’re an owner of the big Canadian banks, you’re probably delighted with the past year’s results. And while a good one-year chart does not mean the year ahead will be as bright, I do think that the banking sector remains a top-notch place to score above-average yields at decent valuation metrics.
Here’s a high-yield ETF that’s worth banking on
Combined with potential tailwinds (lower rates), the banks could continue to impress for another few quarters. Either way, for investors looking to play the big Canadian banks from a different angle, there’s the Global X Equal Weight Canadian Bank Covered Call ETF (TSX: BKCC), which stands out as a higher-yielding way to bet on the broad basket of big banks, especially if you think 2026 will be a choppier year for Canada’s top financials.
The yield of the BKCC currently sits at 10.4%, with a 0.9 beta, making the name slightly less choppy than the TSX Index. The 0.5% MER is also a bit high, but certainly competitive as far as covered call ETFs are concerned. And with around 15.5% in gains in the past year, the big, fat distribution isn’t the only thing that’s rewarded investors in 2025.
Of course, if we’re talking about total returns (that’s dividends plus capital gains), the non-covered call version (just the equal-weight Canadian banks ETF) would have done far better, with more than 41% in gains over the past year. That said, if you think capital gains could be a bit harder to come by and you’d rather get premium income stacked on top, rather than added potential capital appreciation upside, I do view the BKCC as an intriguing tool, to say the least.
This ETF brings a lot to the table for passive income seekers
As the ETF’s name suggests, you’re getting exposure to the Big Six banks with a covered-call writing “flavour.” With monthly income payments and the means to supercharge income, I view the security as intriguing at a time like this, when the banks are running hot and demand for call options on them is looking healthy.
All considered, income investors might find the BKCC a worthy trade-off, especially for those who want more exposure to the big banks with a bit more of a yield jolt.
