Bonds worked really well as a portfolio diversifier for more than four decades, and a huge part of that success came from the long-term trend of falling interest rates. When interest rates fall, the value of existing bonds rises because their fixed coupon payments become more attractive relative to newly issued bonds. That dynamic created a tailwind for bond investors over time.
For the better part of 40 years, investors using a classic 60/40 portfolio of stocks and bonds benefited enormously from this environment. When stocks sold off during periods like the 2008 financial crisis or the 2020 COVID-19 crash, central banks responded by aggressively cutting interest rates. That provided a powerful boost to bonds right when investors needed stability the most.
But there was always a flaw hiding underneath the surface. A traditional 60/40 portfolio may appear balanced in dollar allocation, but not in terms of risk contribution. In many cases, roughly 90% of the portfolio’s volatility still comes from the stock allocation. Bonds help dampen some of the swings, but they are not contributing equally to the portfolio’s risk. And that weakness became very obvious in 2022. Once inflation surged and interest rates began rising aggressively, stocks and bonds fell together. The negative correlation investors had relied on for decades disappeared.
So, if your primary goal is generating retirement income that can satisfy something like the 4% withdrawal rule, there is a case for covered-call strategies. But you have to be selective. I do not particularly like the passive index-covered-call ETFs that systematically sell at-the-money calls on 100% of their portfolios every month. Those strategies often sacrifice too much upside.
If you are going to use covered calls, I think active management matters here. One option I find reasonably attractive is the Amplify CWP Enhanced Dividend Income ETF (NYSEARCA: DIVO). Here is why I like it better than the rest.
What Is DIVO?
The first part is the stock portfolio itself. DIVO builds a concentrated portfolio of roughly 20 to 25 high-quality large-cap companies. The process starts by screening for businesses with strong historical dividend growth and earnings growth. From there, the managers can allocate across all 11 S&P 500 sectors while overweighting or underweighting based on their macroeconomic outlook.
Final portfolio construction emphasizes factors like market capitalization, management track record, earnings consistency, free cash flow generation, and return on equity. As of March 31st, the ETF has its largest sector allocation in financials at roughly 25% of the portfolio, followed by industrials and technology at approximately 15% each, with consumer discretionary around 14%.
The second component is the covered-call overlay. Importantly, DIVO does not systematically write calls against an index like the S&P 500 or Nasdaq-100. Instead, it selectively sells covered calls on individual stocks, adjusting strike prices, expiration dates, and coverage ratios based on market conditions and manager discretion.Because the managers are not blindly capping upside on the entire portfolio every month, DIVO tends to preserve significantly more long-term capital appreciation potential compared to many passive covered-call ETFs.
The tradeoff is that the yield is lower than some of the ultra-high-income covered-call products on the market. As of April 30, DIVO carried a 4.75% annualized distribution rate, which still comfortably exceeds the traditional 4% withdrawal rule often discussed in retirement planning. The ETF charges a 0.56% expense ratio. That is not cheap relative to plain vanilla index ETFs, but for an actively managed covered-call strategy, it sits roughly in the middle of the pack.
How Has DIVO Performed?
DIVO has long been sub-advised by Capital Wealth Planning and portfolio manager Kevin Simpson, whom many investors may recognize from appearances on CNBC. So far, the strategy has performed quite well. As of March 30, 2026, DIVO carried a five-star Morningstar rating, placing it among the top-ranked funds in its derivative income peer category on a risk-adjusted basis.
Now, on an outright total return basis, DIVO has still lagged the broad market somewhat. Over the last five years, DIVO delivered an 11.4% annualized return compared to 13.14% for the S&P 500. But I think that comparison misses the point. For retirees, one of DIVO’s biggest strengths is behavioral.
A lot of retirees dislike selling shares to fund retirement spending, even though mathematically selling appreciated shares and receiving distributions can produce similar economic outcomes. DIVO helps bridge that gap psychologically by delivering regular cash flow directly to investors.
And importantly, it has done so with respectable risk-adjusted performance. According to Testfolio.io data covering December 14, 2016 through May 19, 2026, or roughly 9.43 years, DIVO generated a Sharpe ratio of 0.70. By comparison, a traditional Vanguard-style 60/40 portfolio recorded a Sharpe ratio of 0.65 over the same period.
That does not necessarily mean DIVO should completely replace bonds in retirement portfolios. But for retirees looking to partially substitute a portion of their bond allocation with a more income-focused equity strategy, I think DIVO presents a fairly compelling case.
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