U.S. covered call funds have experienced record inflows this year, with investors increasingly turning to these funds for higher returns and protection from ongoing market volatility, fueled by tariff risks and geopolitical tensions.
According to Morningstar data, U.S. derivative income funds, primarily built on covered call strategies, attracted a record $31.5 billion in the first half of 2025. By mid-July, these funds secured an additional $2.5 billion, pushing total net assets to a new high of $145 billion. Covered call funds generate income by owning stocks and selling call options, collecting premiums in return. In volatile markets, like the current one, these options often expire unused, allowing funds to retain the premiums.
Why Investors Are Embracing Covered Call Funds:
– Attractive Yields: Funds like the JPMorgan Equity Premium Income ETF (8.25% trailing yield), JPMorgan Nasdaq Equity Premium Income ETF (11.5% yield), and Global X Nasdaq 100 Covered Call ETF (13.9% yield) offer much higher returns compared to the 10-year U.S. Treasury yield of 4.4%.
– Risk Management and Cash Flow: Covered call funds are becoming more popular with retirees and conservative investors, as they provide a reliable income stream and help manage portfolio volatility. With market conditions uncertain, these funds offer a buffer against broader equity market struggles.
– Accessibility: Low-fee ETFs and the ability to invest through 401(k) plans have made these funds more accessible to a broader range of investors.
Investor Sentiment:
– Mark Haefele, CIO at UBS Global Wealth Management, points out that while recent rallies have priced in a lot of positive news, investors should be prepared for potential market volatility in the coming weeks.
– Barry Martin, Portfolio Manager at Shelton Capital Management, highlights that investors are using covered call funds not only for cash flow generation but also to manage portfolio risk, making them a powerful tool in today’s volatile market.
In an uncertain economic landscape, covered call funds are becoming an attractive option for those seeking consistent income with reduced exposure to broader market risks.
