If you’re willing to sacrifice a bit of capital appreciation potential or take on more risk while paying a somewhat higher management expense ratio (MER), a specialty income exchange-traded funds (ETFs) might be a great fit. Of course, covered call ETFs and similar yield-boosting products don’t just offer the extra yield for free.
There are trade-offs, and as always, income investors should understand the risk/reward as well as how such products stack up against more traditional low-cost index ETFs. For investors looking to boost their portfolio’s average yield, adding a few shares of a monthly income ETF with sky-high yields could make sense.
Of course, when it comes to such sky-high yielders, you should be prepared for a bit of yield volatility in any given month. In prior pieces, I’d highlighted that the monthly distribution could vary and that investors shouldn’t rely on a steady stream of income.
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The case for covered calls amid market volatility
You could have good months, great months, and the not-so-great months, where the distribution is quite a bit lower than expected. Either way, if you can manage the risks and be comfortable with whatever distribution you receive in a given week, I think the covered call ETFs can be a great fit. And while share price volatility might be less than that of a more traditional equity ETF, the capital gains potential will be far more limited.
At the end of the day, the total returns, which include the capital gains as well as monthly distributions (from stock dividends and options premiums) may not be all too much better than a more traditional low-cost comparable. In any case, you’re not betting on monthly income ETFs to beat the market; you’re looking to get an income boost, even if it means subpar total returns relative to the rest of the TSX Index or S&P 500.
Without further ado, let’s look at two monthly income ETFs that have been doing well of late.
CI Energy Giants Covered Call ETF
I’m not a fan of chasing performance, but CI Energy Giants Covered Call ETF (TSX:NXF) seems to stand out as a portfolio diversifier that many of us wish we had going into 2026. Year to date, the NXF is up over 32%. Indeed, it’s a covered call ETF with a 0.65% management expense ratio (MER) and a nice 6.4% yield. As the name of the ETF suggests, it invests in the big oil titans, many of which are carrying the broad markets right now.
As a global big energy play, with around 40% exposure to international energy stocks, just over 38% in U.S. names, and around 22% in Canada, the ETF really is a one-stop shop as a terrific hedge against sudden oil spikes. So, if talks of US$150 per barrel of oil keep you up at night, the NXF might still be worth picking up for the generous monthly distributions as well as the ability to hold up and gain when geopolitical tensions get really bad.
BMO Covered Call Utilities ETF
Shares of BMO Covered Call Utilities ETF (TSX:ZWU) have also been a pillar of stability amid the latest slide in stocks, down less than 1% from its highs. And with fat monthly distributions (7.0% yield), the ride has been even smoother for investors. Though I’m not a fan of higher MERs, I think that the low beta (0.47) and fatter monthly income make the ETF a fantastic portfolio diversifier.
So, if you want something heavy in the utility names, the ZWC may be the ETF to stick with. So far this year, it’s up close to 10%, crushing the TSX Index, which is on the verge of a correction.
