U.S. covered call funds are seeing record inflows in 2025 as investors seek a consistent income stream and protection from market volatility. With tariff risks and geopolitical tensions continuing to cloud the markets, covered call funds are offering a strong alternative to traditional equity and bond investments.
According to Morningstar data, U.S. derivative income funds, which are primarily built on covered call strategies, attracted a record $31.5 billion in the first half of the year. By mid-July, they had secured an additional $2.5 billion, pushing total net assets to a record $145 billion.
Why Investors are Flocking to Covered Call Funds:
– Income Generation: These funds own stocks and sell call options, collecting premiums. While gains are capped if stock prices rise significantly, the consistent income stream remains attractive in volatile markets.
– Strong Yields: For example, the JPMorgan Equity Premium Income ETF has yielded 8.25%, while the JPMorgan Nasdaq Equity Premium Income ETF and Global X Nasdaq 100 Covered Call ETF have yielded 11.5% and 13.9%, respectively—well above the 4.4% yield on 10-year U.S. Treasuries.
– Accessible Through ETFs and 401(k)s: Covered call funds are becoming increasingly accessible through low-fee ETFs and 401(k) plans, making them an appealing choice for retirees and conservative investors seeking more yield than traditional bonds.
Investor Sentiment:
– Retirees and Conservative Allocators: The biggest demand for covered call funds is coming from these groups, as they provide attractive yields with lower volatility than traditional equities.
– Risk Management: As Mark Haefele, CIO of UBS Global Wealth Management, points out, the recent rally has priced in much of the good news, and investors should prepare for potential market volatility.
– Portfolio Volatility: Barry Martin, portfolio manager at Shelton Capital Management, notes that covered call funds offer an effective strategy for managing both yield generation and portfolio risk, especially in a year marked by heightened volatility.
In uncertain times, covered call funds are providing investors with a powerful tool to generate income while navigating market swings.
