Covered-call ETFs like the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), NEOS S&P 500 High Income ETF (BATS:SPYI), and Goldman Sachs S&P 500 Premium Income ETF (NASDAQ:GPIX) have been extremely popular, and they still are. They’re not the worst thing to buy if you know what you’re doing, but there’s always a better option out there, and that’s the Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO).
We’ll look into what makes DIVO special and what makes it stand out. But before I do that, it’s a good idea to look at these big three covered call ETFs to see what makes them the wrong investment for you.
JEPI, SPYI, and GPIX are not dividend ETFs
No matter how many times you see them featured in an article as “dividend ETFs,” they’re not. A dividend ETF has defensive characteristics and provides you with a reliable source of income. If a dividend ETF does not provide ballast to your portfolio, this takes away the entire rationale for owning it in the first place.
For example, both SPYI and GPIX hold the S&P 500 and then write call options on that index. It then returns the money to you as dividend income. All you need to know is that you’re essentially converting the upside of a rally into a double-digit yield. If the S&P 500 goes down, so will these ETFs. And when it does recover, the capped upside will make it harder for you to recover alongside the index.
JEPI owns the more “defensive” slice of the S&P 500, but the PE ratio of its holdings is still above 25 times.
In most cases, you end up worse off.
Where it does turn into a disaster is if you put these ETFs into your dividend portfolio. You’re essentially doubling down on the S&P 500 or whichever index these ETFs derive their income from. A real dividend ETF holds cash cows that can counteract a downturn.
Why DIVO is different
DIVO is also involved in covered calls, but it does so more selectively. It only sells calls when implied volatility is rich enough to make the premium worth the capped upside, and only on individual stocks where the near-term upside is limited anyway. That’s why DIVO captures more of the rally. It’s selling the upside less often and at better prices.
Let’s compare DIVO to its closest competitor and see where things stand.
Year-to-date, DIVO is up 4%, dividends reinvested, and JEPI is up 2.6%. From JEPI’s inception till today, it has delivered 90.8% in overall returns if you put every dollar back into the ETF. DIVO has done far better at 119.25%, and the drawdowns also look very similar. The worst drawdown was in September 2022, when JEPI fell 13.71%, and DIVO fell 13.72%.
It’s clear which ETF has the better risk-reward ratio.
Now the two ETFs that have done better are GPIX and SPYI. GPIX’s inception was back in late October 2023. It has gained 65.7%. SPYI has gained 54.2% in the same time period. DIVO has only managed 50.4%.
Case closed? Not so fast.
Both SPYI and GPIX have had drawdowns of ~17% during the tariff selloff. DIVO only lost out 12% and was able to handle dips better consistently.
If that better upside still intrigues you, you should just buy the S&P 500 directly. Remember, you need to be reinvesting the dividends with these covered call ETFs for these returns, whereas holding the SPY would’ve handed you a 75% return.
And if you actually want income, buy DIVO. It is up 2.4% year-to-date, even without the dividends.
JEPI, SPYI, and GPIX do suit some people
A hammer is a bad screwdriver, but it’s a great hammer. JEPI, SPYI, and GPIX are built for a specific job, and for the person who actually has that job, they do it well. If you’re in decumulation and late into your retirement, there’s no need to think about decades of compounding ahead when you can use the covered call income for expenses without selling shares.
I’d argue DIVO is still a good substitute for retirees, but if you need a higher income, you can go for JEPI.
But if you’re not a retiree, you are almost certainly leaving money on the table.
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