In a Roller-Coaster Market, Which Covered Call ETFs Should You Buy? [Weekend Money]

S&P Equal-Weighted Approach Proves Suitable for Volatile Markets

In a market characterized by heightened volatility, covered call exchange-traded funds (ETFs) that allow investors to hedge against declines while generating cash flow are attracting attention. In particular, securities industry experts have highlighted that covered call products linked to the S&P 500 equal-weighted index are more attractive than those based on the Nasdaq-100.

Go Kyungbum, a researcher at Yuanta Securities, said, "Amid volatile market conditions, covered call ETFs stand out for their ability to provide downside protection through option premiums as well as generate regular cash flow," adding, "At this point, covered call strategies utilizing the S&P 500—especially those employing an equal-weighted approach—are deemed more effective than those based on the Nasdaq-100." The equal-weighted method refers to a portfolio strategy where each stock receives the same allocation, distinguishing it from the market capitalization-weighted approach.

The primary reason cited was the high volatility of technology stocks. Go explained, "Given ongoing concerns about the justification and sustainability of hyper-scale companies’ CAPEX investments, it seems unlikely that this volatility will subside in the short term." He added, "In periods where the volatility of technology stocks has increased, defensive sectors such as energy, healthcare, and industrials have delivered relatively solid returns." According to Go, "The S&P 500 equal-weighted index is showing superior performance compared to both the S&P 500 and the Nasdaq-100 indices."

His top pick is the 'FT Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG).' This ETF reduces the concentration risk toward large technology stocks by including S&P 500 Dividend Aristocrats using an equal-weighted methodology. In addition, by employing a partial covered call strategy instead of writing calls on 100% of the holdings, the fund is structured to provide greater potential for upside in stock prices. "Amid heightened volatility in technology stocks, stable income generation and robust total return (TR) performance can be expected," Go said.

He also compared covered call ETFs according to investor preference. First, the 'JPMorgan Equity Premium Income ETF (JEPI)'—the largest covered call ETF in the United States—actively selects high-quality, low-volatility stocks within the S&P 500. According to Go, "While its upside is limited in a bull market, it is suitable for investors who prioritize stable cash flow."

The 'Amplify CWP Enhanced Dividend Income ETF (DIVO)' was recommended for investors who value steady defense and capital gains participation over high distribution yield. This ETF selects high-quality, large-cap stocks within the S&P 500 that demonstrate dividend growth and solid fundamentals. It selectively sells call options based on momentum and volatility for each stock, allowing it to participate in some upside if share prices rise.

The 'NEOS Nasdaq-100 High Income ETF (QQQI)' was assessed as suitable for investors seeking both participation in rising markets and high monthly income—boasting an annual yield of 14%. This ETF tracks the Nasdaq-100 and sells index call options. Go noted that "in tech-driven bull markets, it is advantageous in terms of total return (TR) compared to JEPQ, which focuses on selecting lower-volatility stocks."

This content was produced with the assistance of AI translation services.