Covered call, or buy write ETFs are becoming more popular on the ASX. Products like JEPI, JEGA, QYLD, UYLD and AYLD are attracting growing interest from investors searching for higher income solutions.
We are also seeing this firsthand. It is an area more clients are asking us about. The appeal is understandable. These ETFs advertise yields of 7%, 8% or even 10% and pay income monthly. In a market where cash rates are low and dividends feel less predictable, that sounds compelling.
Many investors are specifically asking whether covered call ETFs are a smarter way to generate income from shares. Others are comparing JEPI vs IVV or QYLD vs NDQ and wondering if they are missing out on a more efficient strategy.
The common thread is the same. Investors want income. They want smoother returns. And they want a way to reduce volatility without giving up growth. In this article we’ll walk through the most common arguments in favour of these products and unpack them clearly.
The case for harvesting volatility
One of the central arguments is that covered call ETFs harvest volatility. Instead of relying purely on capital growth and dividends, the fund systematically sells call options and converts market volatility into income.
This sounds like an elegant enhancement to equity exposure.
But option premium is not free money. It’s compensation for giving up upside. When markets rise above the strike price, gains are capped. The fund has sold that future growth to another investor.
Over time, shares rise more often than they fall. That upward bias is the reason shares outperform bonds and cash. If you consistently cap the right tail of returns, you dampen long term compounding.
You are not unlocking a new return stream. You are simply rearranging it. More cash flow today. Less capital growth over time.
That trade off becomes obvious when you look at the numbers. Over the past 3 years, several popular covered call and equity income ETFs have materially underperformed the equivalent vanilla index ETFs on a total return basis.
Covered call ETF performance vs index ETFs
When investors search for JEPI vs IVV, UYLD vs IVV or QYLD vs NDQ, they are usually trying to understand one simple question. Does selling options for income actually improve returns?
The comparison itself is straightforward. One strategy writes call options over the index to generate income. The other simply tracks the underlying index and captures its full upside.
Below we compare 3 year total returns to 31 January 2026. Most covered call ETFs on the ASX do not yet have a 5 or 10 year track record, so 3 years is the longest consistent period available for comparison.
| U.S. shares ETF | Benchmark index | 3 year total return( |
| JPMorgan Equity Premium Income Active ETF (JEPI) | S&P 500 | 9.22% p.a. |
| Global X S&P 500 Covered Call ETF (UYLD) | S&P 500 | 10.59% p.a. |
| iShares S&P 500 ETF (IVV) | S&P 500 | 21.58% p.a. |
| Underperformance of covered-call / equity income ETF | 10.99% to 12.36% p.a. | |
| U.S. tech shares ETF | Benchmark index | 3 year total return |
| Global X Nasdaq 100 Covered Call ETF (QYLD) | Nasdaq 100 | 13.63% p.a. |
| Betashares NASDAQ 100 ETF (NDQ) | Nasdaq 100 | 29.82% p.a. |
| Underperformance of covered-call / equity income ETF | 11.07% p.a. | |
| Australian shares ETF | Benchmark index | 3 year total return |
| Global X S&P/ASX 200 Covered Call ETF (AYLD) | S&P ASX/200 | 10.21% p.a. |
| iShares Core S&P/ASX 200 ETF (IOZ) | S&P ASX/200 | 11.02% p.a. |
| Underperformance of covered-call / equity income ETF | 0.80% p.a. | |
In each case, the covered call ETF paid higher income. But on a total return basis, the equivalent vanilla index ETF delivered stronger outcomes. That’s the structural trade off.
The case for reducing downside
Another common argument is that covered call strategies reduce risk. The option premium provides a cushion in falling markets. Losses may be slightly smaller during modest drawdowns.
That is partially true. The premium can offset a small portion of a decline.
But in a meaningful bear market, share market exposure still dominates. If markets fall 25%, a covered call portfolio will still suffer a substantial loss. The premium is a buffer, not a hedge.
More importantly, the long term cost of repeatedly capping upside in bull markets can outweigh the short term benefit of a small cushion in weak markets.
If the goal is genuine downside protection, high quality bonds and gold have historically provided more reliable diversification. They often rise when equities fall. They do not cap upside during strong rallies.
If you want less share market risk, the cleanest solution is to own less shares.
The case for income stability
A powerful argument in favour of covered call ETFs is behavioural. Many investors prefer income. A 9% or 10% yield feels tangible and reassuring. It feels safer than relying on capital growth.
But income and capital gains are economically similar. An option premium distribution ultimately comes from the value of the underlying shares.
A covered call ETF paying a high yield is not generating wealth from nowhere. It is monetising volatility and giving up part of the portfolio’s growth potential.
If an investor needs 9% or 10% per year to fund spending, that can be achieved by periodically selling a small portion of a diversified portfolio instead. That approach preserves full exposure to market growth and avoids structurally capping returns.
Yield can feel comforting. But total return is what’s really important.
The case for better risk adjusted returns
Issuers often point to improved risk adjusted returns over certain periods. By slightly reducing volatility and generating steady distributions, metrics like Sharpe ratios can look attractive in sideways markets.
In specific environments (like sideways markets), that can be true. But long term wealth creation depends on compounding. Compounding depends on fully participating in bull markets.
Evidence from large US covered call funds shows that over full market cycles they tend to underperform the underlying index on a total return basis. They smooth the path but they rarely enhance the destination over decades.
If your goal is a smoother ride at the cost of lower cumulative growth, that trade off may suit you. If your goal is maximising long term purchasing power, the opportunity cost is real.
The cost that compounds quietly
Beyond the structural cap on upside, there are practical costs.
Covered call ETFs typically charge higher management fees than plain index ETF. They also incur transaction costs every month when rolling options. Each roll involves crossing the bid ask spread.
Those frictions compound. Higher fees. Ongoing trading costs. Reduced upside.
All of this must be weighed against the psychological appeal of a high, regular yield.
A simpler path
At Stockspot, we focus on asset allocation as the primary driver of outcomes. If a client wants more stability, we increase exposure to defensive assets (high grade bonds and gold). If they want more growth, we increase exposure to shares.
We do not believe that complex overlays are a substitute for disciplined portfolio construction and rebalancing.
A diversified mix of global shares, emerging markets, bonds and gold can deliver growth and manage risk without systematically shaving off upside.
The bottom line
Covered call ETFs are thoughtfully designed products and they may suit the investment goals of some people. But the high yield isn’t magic. It’s largely the result of exchanging future growth for present income.
Over long horizons, markets reward those who stay invested and capture the full upside of shares. Strategies that consistently cap that upside face a structural headwind.
In investing, simple often wins. Low costs. Broad diversification. Clear asset allocation.
Income has its place. But total return is what builds wealth over decades.
