In the realm of income-focused investing, exchange-traded funds (ETFs) employing covered call strategies frequently dominate discussions. However, these vehicles, while offering attractive payouts, often come with an unseen drawback: a capped upside potential during robust bull markets. This inherent limitation can lead to long-term underperformance, particularly when factoring in inflation and the compounding growth of equities. Astute investors recognize the importance of diversification, not just across traditional asset classes, but also in the methodologies used to generate yield. This article delves into three distinct ETFs that each boast yields surpassing 10%, achieving these impressive returns through innovative approaches that diverge from the omnipresent covered call framework.
The prevailing wisdom concerning covered call ETFs highlights their tendency to lag in strong upward market trends, as a portion of their potential gains is foregone. Conversely, they may shine in stable, sideways markets and offer a degree of protection during downturns by using premiums to offset losses. However, considering that bull markets have historically been the more common scenario for most investors, relying solely on covered calls can impede total return growth. For those prioritizing income, a diversified strategy that incorporates various risk premiums for yield generation is often more prudent than exclusively leveraging one options strategy.
One such alternative is represented by the WisdomTree Equity Premium Income Fund (WTPI). This ETF employs the strategy of selling cash-secured puts, which is essentially the opposite side of the options income coin. For instance, if a stock trades at $100 and an investor is willing to acquire it at $95, they can sell a $95 put option. In return for this obligation, the investor receives a premium. Should the stock remain above $95 until expiration, the put expires worthless, and the investor retains the premium. If the stock falls below the strike price, the investor may be obligated to purchase the shares at $95 each, regardless of further market declines. This strategy effectively trades exposure to downside risk for consistent income. WTPI systematizes this process by tracking an index that sells slightly out-of-the-money S&P 500 put options, with an approximate target strike 2.5% below the index. As of August 31, WTPI showcased a 12.09% distribution yield, net of its 0.44% expense ratio.
Beyond options, the bond market also presents opportunities for double-digit yields, albeit with heightened credit risk. The BondBloxx CCC Rated USD High Yield Corporate Bond ETF (XCCC) provides exposure to this segment. Investment-grade corporate bonds are typically rated BBB or higher; anything below this falls into the non-investment-grade category, often termed high-yield or junk bonds. CCC-rated issuers sit at the lower end of this spectrum, implying a significant risk of default. Historical data from S&P Global indicates a cumulative default rate of 45.67% over three years for CCC-rated corporate debt. For investors who are comfortable with this elevated risk, XCCC offers diversified access to these bonds, limiting individual issuer exposure to approximately 2% to mitigate the impact of single defaults. As of September 1, 2026, XCCC had an 11.94% 30-day SEC yield, after its 0.40% expense ratio, reflecting the compensation for assuming substantial credit risk. It is crucial to understand that during economic downturns, these bonds can behave more like equities than traditional fixed income, leading to significant losses across the portfolio.
Another avenue for high income generation without resorting to covered calls is through business development companies (BDCs). Retail investors can access private credit markets via BDCs, which are publicly traded investment firms that primarily lend to or invest in private middle-market businesses. These companies often struggle to access conventional public bond markets, making BDCs a vital source of financing, typically through floating-rate senior secured loans. BDCs are structured to distribute most of their taxable income to shareholders, resulting in high yields. The VanEck BDC Income ETF (BIZD) simplifies investment in this complex sector by offering a market-cap-weighted portfolio of publicly traded BDCs. BIZD currently offers an 11.42% trailing 12-month distribution yield, paid quarterly. Investors should be aware of BIZD's expense structure, which includes a 9.69% total expense ratio. However, 9.27% of this comprises acquired fund fees and expenses from the underlying BDC holdings, with VanEck's direct management fee being 0.40%.
Diversifying income sources beyond traditional covered call strategies can empower investors to achieve high yields while managing risk exposures differently. By exploring vehicles like WTPI, XCCC, and BIZD, investors can access varied segments of the market—from cash-secured puts and high-yield bonds to business development companies—each offering a unique blend of risk and return. This multi-faceted approach to income generation provides alternatives for those seeking substantial returns without solely relying on strategies that might limit their overall upside potential in favorable market conditions.
