A Covered Call ETF That Pays 6% Is Beating Vanguard’s Biggest International ETF Right Now

As a general rule of thumb, I usually expect covered call ETFs to underperform their long-only counterparts. Between the tax drag created by frequent distributions, the higher fees, and the simple reality that your upside is capped while you retain most of the downside exposure, the math generally works against you.

Personally, if the goal is income, I’d rather see investors sell shares as needed and benefit from the more favorable tax treatment of long-term capital gains. Still, there are exceptions.One that’s been on my radar recently is the Amplify CWP International Enhanced Dividend Income ETF (IDVO).

Over the 3.75-year period from Sept. 8, 2022, through June 8, 2026, it delivered a 21.54% annualized total return, outperforming the Vanguard Total International Stock ETF (VXUS), which returned 18.22% annualized over the same period.

This isn’t your average covered call ETF, though. Unfortunately, it’s also one that many investors overlook because the headline yield appears modest compared to many competitors, even though the total return profile has been remarkably strong. Here’s what you need to know.

What Is IDVO?

IDVO is an actively managed ETF overseen by two sub-advisers: Capital Wealth Planning and Seymour Asset Management. At its core, the ETF is an actively managed international equity portfolio drawn from the MSCI ACWI ex-U.S. Index. The managers primarily focus on high-quality large-cap companies with the potential to consistently grow their dividends over time.

While the portfolio managers do make tactical decisions regarding country and sector allocations, stock selection is the primary driver of returns. Unlike VXUS, which holds thousands of international stocks, IDVO concentrates its portfolio into roughly 30 to 50 holdings. Companies are selected based on factors such as earnings growth, cash flow generation, return on equity, market capitalization, and management quality.

On top of the stock portfolio sits a covered call overlay. The goal, according to management, is to generate approximately 3% to 4% of annual yield from dividends and another 2% to 4% from option premiums. Importantly, IDVO does not employ the typical covered call approach used by many income ETFs. Rather than selling index calls or systematically writing at-the-money calls across the entire portfolio, the managers write options on individual stocks.

This allows them to take advantage of elevated implied volatility around earnings announcements and other corporate events while preserving more upside participation. That flexibility is one reason the strategy has held up better than many traditional covered call funds.

Yield And Total Return

This is where many investors dismiss IDVO too quickly. As of May 31, the ETF carried an annualized distribution yield of 6.08%. That figure is calculated by annualizing the most recent monthly distribution and dividing it by the fund’s net asset value.

There are certainly covered call ETFs offering significantly higher yields than 6%. The problem is that many of those funds sacrifice total return in exchange for maximizing current income. IDVO has largely avoided that trade-off. A 6.08% yield is already sufficient to exceed the traditional 4% withdrawal guideline used by many retirement investors. More importantly, the strategy has delivered strong growth alongside the income stream.

Morningstar currently assigns IDVO a five-star rating. Within the derivative income category, that places it among the highest-ranked funds on a historical risk-adjusted basis. Performance has also been impressive. Over the trailing one-year period, IDVO returned 35.47%. Over the trailing three-year period, it gained 25.05%.

Returning to the comparison from the introduction, a $10,000 investment made at the beginning of the test period would have grown to approximately $20,774 before taxes in IDVO. The same investment in VXUS would have reached roughly $18,724. That’s a cumulative return of 107.75% versus 87.25%. What’s particularly noteworthy is that IDVO achieved this despite charging a relatively high 0.65% expense ratio, compared with just 0.05% for VXUS. 

My takeaway is simply this: investors should avoid evaluating covered call ETFs solely on yield. Sometimes the most attractive opportunities are not the ones with the biggest distribution rates. A thoughtfully constructed strategy that preserves upside participation can often generate better long-term outcomes than a higher-yielding alternative.