This 6% Yield International Covered Call ETF Is Actually Beating VXUS
Most covered call ETFs sacrifice total return to fund their yields, making them a losing trade against a cheap index fund. One actively managed international fund with a 6% yield is quietly challenging that assumption.
Covered call ETFs tend to attract investors with their yields, but that’s rarely the first number I look at. What matters more to me is what happened to total return after the fund sold away some of its upside, deducted its management fees, and paid those distributions.
That’s where many covered call strategies struggle. A cheap long-only ETF keeps essentially all of the upside generated by its underlying stocks. A covered call ETF collects premiums but periodically hands some of that appreciation to option buyers. During sustained bull markets, that can become a meaningful performance drag.
International stocks make this comparison particularly interesting. The Vanguard Total International Stock ETF (VXUS) already provides diversified exposure to developed and emerging markets for just 0.05% annually. It sets a difficult benchmark for a more complicated strategy to beat after fees.
Yet one international covered call ETF has managed to do exactly that so far. The Amplify CWP International Enhanced Dividend Income ETF (IDVO) currently distributes about 6.1% annually, and since its 2022 launch, it has also outperformed VXUS on a total return basis.
Why IDVO Is Different From a Typical Covered Call ETF
IDVO is actively managed by Capital Wealth Planning and generally owns a concentrated portfolio of roughly 30 to 50 international stocks selected from the MSCI All Country World Index ex USA universe. Rather than simply buying every stock in proportion to market capitalization, portfolio manager Kevin Simpson and his team consider factors including earnings growth, free cash flow growth, dividend growth, return on equity, market capitalization and management quality. The managers can also adjust country and sector exposures based on where they see opportunities.
International dividend stocks provide the first source of income. IDVO targets approximately 3% to 4% from dividends generated by its underlying holdings. The second source is options premiums, which can potentially contribute another 2% to 4%. This is where the active management becomes particularly important. IDVO doesn’t mechanically overwrite its entire portfolio with index calls. Calls are instead sold tactically against individual holdings.
That means the managers can decide which stocks to overwrite and adjust strike prices, expiration dates and overwrite ratios. If they believe a particular stock has significant appreciation potential, they don’t necessarily have to cap that position simply because the strategy requires a predetermined portfolio-wide overwrite. Based on its most recent monthly distribution annualized against NAV, IDVO currently has a distribution rate of approximately 6.1%. The fund pays monthly, although the distribution can fluctuate.
The flexibility isn’t free. IDVO charges a 0.65% expense ratio compared with just 0.05% for VXUS. The active management therefore needs to overcome a 60-basis-point annual cost disadvantage before it can even begin adding value relative to the cheaper index fund.
IDVO Has Actually Beaten VXUS So Far
So far, it has cleared that hurdle. According to Testfolio, from Sept. 8, 2022 through Sept. 21, 2026, IDVO generated a 116.94% cumulative total return with distributions reinvested. VXUS returned 96.10% over the same period. Risk-adjusted performance was also stronger over this particular period. IDVO produced a Sharpe ratio of 1.00 compared with 0.86 for VXUS.
That’s particularly notable because IDVO wasn’t simply producing larger distributions while gradually sacrificing principal. Its total return, which incorporates both distributions and changes in share price, exceeded that of the long-only international index ETF.
I wouldn’t assume that continues indefinitely. We’re dealing with roughly four years of history, and active stock selection can move from being a source of outperformance to underperformance. Covered calls can also become a larger handicap during particularly strong rallies.
But IDVO demonstrates what I want to see from an income ETF. A 6.1% distribution is useful, particularly for someone actually spending the monthly cash flow, but the yield hasn’t required investors to accept deteriorating total returns so far.
For an accumulation investor who doesn’t need income, VXUS still has obvious advantages. It’s dramatically cheaper, considerably more diversified and doesn’t sell away any potential upside. But for an investor specifically looking for international equity income, IDVO’s combination of stock selection and tactical covered calls has produced an unusually strong record to date.
Contact [email protected] for any questions or corrections.
Tony Dong is the founder of ETF Portfolio Blueprint. He also serves as Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE.
Tony’s work focuses on ETF strategy, portfolio construction, and risk management, with an emphasis on making complex investment concepts accessible to everyday investors. His insights and analysis have also appeared in U.S. News & World Report, Kiplinger, MoneySense, and The Motley Fool.
Tony holds a Master of Science degree in enterprise risk management from Columbia University and the Certified ETF Advisor (CETF) designation from The ETF Institute.
