U.S. covered call funds attract record inflows as investors seek yield
According to Morningstar data, U.S. derivative income funds, primarily made up of covered call strategies, attracted a record $31.5 billion in the first half of this year.
Till the middle of this month, they secured another $2.5 billion, lifting the total net assets to a record $145 billion, the data showed.
Covered call funds generate income by owning stocks and selling call options on them, collecting premiums in return.
In choppy markets, like the current one clouded by macroeconomic uncertainty, these options often expire unused, allowing the fund to retain the premium as stock prices typically don't rise enough to trigger a sale.
While gains are capped if markets rise sharply, the consistent income stream remains appealing.
The JPMorgan Equity Premium Income ETF has offered a 12-month trailing yield of 8.25%, while the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ.O), opens new tab and the Global X Nasdaq 100 Covered Call ETF (QYLD.O), opens new tab yielded 11.5% and 13.9%, respectively, well above the 10-year U.S. Treasury yield of 4.4%.
Chad Harmer, founder and chief investment officer of Harmer Wealth Management, said covered call funds have also become more accessible through low-fee ETFs and 401(k) plans.
A 401(k) is a U.S. workplace retirement plan that lets individuals invest pre-tax income and continue managing those assets into retirement.
The biggest demand is coming from retirees and conservative allocators, as these funds on average pay more than bonds and rise on concerns that broader equity markets may struggle to keep recent gains.
"We believe that the substantial rally in recent weeks has already priced in a lot of potential good news, and that investors should prepare for potential market volatility in the weeks ahead,' said Mark Haefele, chief investment officer at UBS Global Wealth Management.
Barry Martin, portfolio manager at Shelton Capital Management, said investors are embracing covered call funds not just for cash flow generation, but also to manage portfolio volatility.
"It's a powerful shift in how we approach yield and risk management. This year, with the increased volatility, it is especially a good market to sell calls in."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
24 minutes ago
- Reuters
Hot U.S. inflation data rattles global bond markets
LONDON/SINGAPORE, Aug 14 (Reuters) - U.S. stagflation fears seeped into global markets on Thursday after surprisingly hot inflation data applied heavy pressure to U.S. Treasuries and sparked selling of government bonds everywhere from Germany to Japan. Wall Street stocks took a hit too, with futures contracts tracking the domestically-focused Russell 2000 share index , which dropped 1.2% in the minutes after official data revealed an unexpectedly large jump in U.S. producer prices. The producer prices index, which investors have been watching for signs of pipeline inflation pressures from U.S. President Donald Trump's trade tariffs, rose 0.9% in July from the month before, trouncing consensus forecasts for a 0.2% gain. European stocks (.STOXX), opens new tab held on to gains from earlier in the day and were last 0.2% higher, while Wall Street's S&P 500 index was set to fall about 0.4%. Two-year Treasury yields, which track monetary policy expectations, leaped by 4.3 basis points (bps) immediately after the data to 3.73% as expectations for jumbo Fed rate cuts faded . Money markets showed traders still almost unanimously expect the Federal Reserve to lower borrowing costs next month after keeping its main funds rate at 4.25%-4.5% since December. But bets on a bigger 50-bp rate cut, encouraged by comments from U.S. Treasury Secretary Scott Bessent on Wednesday, quickly faded out of the market. The five-year Treasury yield climbed about 2 bps as the price of the debt fell, and last traded at 3.798%. "Inflation is starting to come through. It's not massive yet but that could certainly continue in coming months," Russell Investments global chief investment strategist Paul Eitelman said. The U.S. dollar, which had weakened on rate cut fervour, ticked higher but remained pinned near multi-week lows against major currencies. An index tracking the greenback against peers including the euro and Japan's yen edged 0.3% higher. The euro dropped 0.4% to $1.166. European stock indices mostly traded calmly, with the main STOXX (.STOXX), opens new tab index up 0.2% and Germany's DAX (.GDAXI), opens new tab adding 0.4% UK and euro area government bonds sold off alongside Treasuries. The benchmark 10-year Bund yield was up 2.4 bps to 2.27% and Britain's equivalent gilt yield rose 3.7 bps to 4.626%. MSCI's global share index (.MIWD00000PUS), opens new tab edged down 0.2% after hitting all-time peaks for the two previous sessions, in a rally led by a strong corporate earnings season and anticipated monetary easing. Surprisingly weak monthly U.S. jobs data on Aug. 1 had kept the focus on the softening U.S. economy and the potential for rapid rate cuts. But while markets overall had been expressing a glass-half-full approach to the U.S. economy, big investors have been preparing for inflation to rise. About 70% of global investors expect U.S. stagflation, where growth slows as the rate of consumer price rises accelerates, to become the dominant market narrative within three months, a Bank of America survey found this week. Elsewhere, commodities markets were showing some signs of geopolitical stress ahead of Friday's summit between Trump and his Russian counterpart Vladimir Putin. Trump on Wednesday threatened "severe consequences" if Putin did not agree to peace in Ukraine and has also floated the idea of a second summit that would include Ukrainian President Volodymyr Zelenskiy. Brent crude, the global oil marker, rose from almost a two-month low with a 1.2% jump to $66.39 a barrel and U.S. crude added 1.3% to $63.43 . But spot gold prices , which tend to rise when investors focus on geopolitical and inflation risks, bucked the market trend and edged 0.2% lower to $3,346 an ounce.
Reuters
24 minutes ago
- Reuters
Breakingviews - Facebook teaches early lesson in unbounded AI risk
NEW YORK, Aug 14 (Reuters Breakingviews) - Artificial intelligence calls for a rethink on the tradeoffs between technological utility and risk. Unguided chatbot responses, for example, cannot be neatly constrained. Attempts to do so will either be insufficient or entangle developers in a morass of third-rail social issues. Just look at Facebook owner Meta Platforms (META.O), opens new tab, where internal AI guidelines incredibly and explicitly allowed 'sensual' conversations with children and racist arguments. The chance of backlash is underpriced. Meta's 'Content Risk Standards' framework for its generative AI includes a range of controversial guidelines, according to a Reuters special report published on Thursday. Examples of acceptable responses include comments on an 8-year-old's body to 'statements that demean people on the basis of their protected characteristics,' like race. It follows Wall Street Journal probes, opens new tab on Meta chatbots engaging in sexually explicit conversations with users identifying as minors. A spokesperson told Reuters that the company is in the process of revising its guidelines and that such conversations with children never should have been allowed, adding that the 'examples and notes in question were and are erroneous and inconsistent with our policies.' U.S. lawmakers already have dragged Meta CEO Mark Zuckerberg into hearings over whether Facebook or its sister app Instagram pose harms to children. The difference with AI is that the company produces the dangerous content. Reuters also chronicled the story of one man's spiral into fantasy with a flirtatious chatbot. Repeated interventions to protect children, including age limits in places like Australia, have done little to slow the $2 trillion social media juggernaut. AI represents a whole new proposition, however, because its instability is inherent to the product, forming its core use case and its greatest weakness. Happyish mediums can be reached, as in coding, but putting kids in harm's way is far harder to brush off than a Python glitch. Beyond the potential psychological harms, going off-script can be disastrous for businesses. In a 2024 case, opens new tab, a tribunal found airline Air Canada responsible for misinformation given by its AI helper to a customer. Sebastian Siemiatkowski, CEO of buy-now-pay-later giant Klarna (KLAR.N), opens new tab, told Bloomberg, opens new tab that its pivot into automated customer service agents led to 'lower quality.' Citizens of Silicon Valley famously prefer to seek forgiveness rather than permission. The headlong rush into AI, while largely brushing aside guardrails, pushes the ethos to a new level. There were more than $120 billion of venture-capital-backed deals in large language models and machine learning in the first half of 2025, according to PitchBook data, opens new tab, nearly matching last year's entire tally. Valuations are also climbing unabated; OpenAI's jumped from $300 billion to $500 billion in a matter of days. Seductive rewards are glossing over AI's inherent risks. Follow Jonathan Guilford on X, opens new tab and Linkedin, opens new tab.
Reuters
24 minutes ago
- Reuters
India wants US ties based on mutual respect, says its arms purchases are on course
NEW DELHI, Aug 14 (Reuters) - India said on Thursday that it hoped relations with the United States would move forward based on mutual respect and shared interests, seeking to temper worries that ties were headed downhill in the aftermath of high tariffs imposed by Washington. A U.S. defence policy team will be in New Delhi this month for talks with Indian officials and its arms purchases from the U.S. are on course despite the strain in ties, the Indian foreign ministry said. A new friendship built between the two countries has hit a rough patch after President Donald Trump raised tariffs on Indian goods to 50% last week from an earlier 25% saying it was a penalty for India's continued imports of Russian oil. New Delhi has accused the U.S. of double standards in singling it out for Russian oil imports and called the tariffs unfair, unjustified and unreasonable. At the same time, it has also indicated that the warming of ties that began at the turn of the century covers a wide range of areas and should not be seen only through the prism of trade, although it hopes that trade talks will continue and result in a deal. "This partnership has weathered several transitions and we hope that the relationship will continue to move forward based on mutual respect and shared interests," Indian foreign ministry spokesperson Randhir Jaiswal told a regular media briefing. Purchases of military equipment from Washington were on course, Jaiswal said, adding that a U.S. defence policy team was expected in Delhi this month. Reuters reported last week that India has put on hold its plans to procure new U.S. weapons and aircraft and that a planned trip to Washington by the Indian defence minister had been cancelled. The Indian government subsequently said reports of a pause in the talks were wrong.
