There are two ways investors make money: capital gains and income.
Some go for capital gains—buy low, sell high. Others prefer generating cash flow, especially if they’re planning for retirement or looking to supplement their existing income.
Both approaches have their own challenges, but in this post, I want to focus on income investing.
The Core Problem with Income Investing
The biggest challenge income investors face is this:
We want high yields without high risk to capital.
Unfortunately, that’s not how markets work. High yields often come from higher-risk bonds or dividend stocks—assets that can default or drop sharply in value during market stress.
Even if something yields 8%, it’s not worth it if the underlying price crashes by 50%. You’re losing more than you’re gaining.
Another trade-off is that high-yield assets often don’t provide much capital appreciation. Bonds held to maturity don’t deliver gains beyond their coupons. High-dividend stocks tend to be mature, slow-growth companies.
But let’s be honest—we’re greedy (and I mean that in a good way). We want both income and capital gains.
Common Ways to Get Both (and Their Drawbacks)
Dividend growth stocks: These grow payouts over time, giving you a rising income stream. But the starting yield is often low—typically 1–3%.
Deep value dividend stocks: These might give you high yields and upside from mean reversion. But they’re often small caps you’ve never heard of—and many investors feel uncomfortable holding such names.
Enter: Covered Call Funds
There’s a third way—covered call options.
The strategy is simple in concept: You hold a stock (or a stock portfolio), and you sell a call option on it to collect option premiums as income.
If the option expires worthless, you keep the premium.
If it gets exercised, you sell the stock at the strike price (usually at a gain).
This helps you generate consistent monthly income, while also owning the underlying stock for capital gains.
Now, doing this yourself—stock by stock, option by option—is tedious and complicated. You’ll also need margin accounts and active monitoring.
Covered call funds do it for you—automatically, passively—and pay out monthly.
Here are three covered call funds worth exploring. This is not a sponsored post, nor is it financial advice. If you need help deciding whether these make sense for your portfolio, I’m a licensed advisor and happy to assist.
#1 JPM US Equity Premium Income Active UCITS ETF (LSE:JEPI)
JEPI has become a household name among income-focused investors—it’s currently the world’s largest actively managed ETF, with over US$41 billion in assets. That tells you just how strong demand has become for strategies that can deliver income in a low-yield world.
Over the past 12 months, JEPI has yielded a compelling 8.38%. That’s a huge jump compared to the S&P 500’s typical 1–2% yield. Since inception, JEPI has delivered a total annual return of 11.69%, suggesting that capital appreciation—on top of the income—has contributed about 3% per year.
For non-U.S. investors, however, the U.S.-listed version comes with a drawback: a 30% withholding tax on dividends. Fortunately, there’s a UCITS version domiciled in Ireland and listed on the London Stock Exchange. This version benefits from tax treaties that lower dividend withholding tax to 15%, and better yet, the income from option premiums isn’t taxed for many foreign investors. That makes it a much more attractive for us.
JEPI enhances income by adding an options overlay through equity-linked notes (ELNs). These ELNs are issued by major banks and are designed to replicate the effect of selling out-of-the-money call options on the S&P 500 index. In doing so, the fund collects option premiums, which are then distributed to investors as income.
There are risks to be aware of. ELNs introduce counterparty exposure—you’re depending on the banks that issue the notes to honor their obligations. But JEPI mitigates this by diversifying across multiple issuers. The bigger trade-off is in performance: covered call strategies naturally cap your upside during bull markets, so JEPI may lag in sharp rallies. But in return, you get consistent cash flow and some downside cushion.
#2 Global X HSCEI Covered Call Active ETF (SEHK:3416)
If you’re looking for income exposure to China, 3416.HK is one of the more intriguing products out there. This Hong Kong-listed ETF was launched in February 2024 and has already amassed over HK$7 billion in assets—an impressive feat in just over a year.
In its first year, 3416 delivered a total return of 28.06%, driven by a juicy dividend yield of 17.02% and a strong recovery in China-related equities. That means the fund didn’t just deliver income—it also captured meaningful capital gains.
Another benefit of using a Hong Kong-domiciled product is its tax efficiency. There’s no withholding tax on option income, and dividends from Mainland companies are only taxed at 10%. For investors in the region, this makes 3416 a potentially attractive core income holding.
This ETF tracks the HSCEI index, composed of major Chinese companies listed in Hong Kong, and uses a covered call strategy by writing options on the index itself rather than on individual stocks. The appeal here is straightforward: in a market known for its volatility, there’s ample option premium to be harvested—and Global X has taken full advantage of it.
That said, the risks are not insignificant. Because the fund focuses on China H-shares, it is sensitive to regulatory changes and policy headlines. Moreover, Global X discloses that distributions can include return of capital—which, while not always a problem, can reduce NAV if done repeatedly. Like all covered call strategies, you’re also sacrificing upside in bull markets once the index exceeds the option strike prices.
#3 Allspring Global Equity Enhanced Income
The Allspring fund takes a different approach altogether. Unlike the two ETFs above, this is a unit trust—and it’s globally diversified across multiple countries and sectors. That alone makes it appealing to investors who don’t want to concentrate too heavily in the U.S. or China.
The fund is available in SGD-hedged and USD classes, which is great for local investors seeking cash flow in their home currency. The SGD share class currently yields about 6%, and despite a shorter track record, it has already shown strong results—delivering 15.75% annualized returns over the past 3 years. The USD class has done even better, returning 17.88% over the same period. That said, SGD hedging introduces some cost, which partially explains the return gap.
The fund enhances yield by writing call options on several major equity indices via ETFs. This multi-market overlay reduces reliance on any single country’s performance. As a result, returns tend to be more balanced and less volatile across different market cycles.
Is It Too Good to Be True?
Let’s be honest—when you hear about funds that pay 6% to 17% in annual income and still deliver capital gains, it sounds almost suspicious. But the truth is, the trade-off isn’t hidden—it’s just misunderstood.
Covered call funds aren’t magic. They work by giving you regular income through selling call options. That creates a cash flow stream, yes, but it also comes with a built-in trade-off: your upside is capped.
In a strong bull market, like when the S&P 500 rallies sharply or when Chinese tech stocks rebound aggressively, these funds will likely underperform traditional index funds. Why? Because once the underlying index or stock price exceeds the option’s strike price, the extra gains go to the option buyer—not you. That’s the cost of collecting option premiums every month.
But this trade-off isn’t always a bad thing. In fact, in sideways or mildly bullish markets, covered call strategies tend to shine. You still get the income from options, and the underlying doesn’t surge past the cap—so you get to keep both the premium and some capital appreciation. That’s where the “best of both worlds” dynamic really works.
And in choppy or down markets, the premium income acts like a cushion. It helps offset capital losses and reduce portfolio volatility. Some investors see this as a more “sleep-well-at-night” approach, especially if they’re drawing income regularly.
So no—it’s not too good to be true. It’s just a different strategy with clearly defined trade-offs. You’re exchanging unlimited upside for monthly cash flow and a bit more predictability. And if your goal is income, this might be the kind of exposure your portfolio needs.
Just make sure you understand the mechanics and know when these funds will lag. They’re not meant to outperform in all environments. But they can serve a powerful role when used correctly—and that’s where having the right portfolio construction makes all the difference.
I help clients design portfolios with sustainable monthly income, using funds like these where appropriate. Covered call funds can serve as core income blocks or enhanced-yield tilts—but only if they fit your goals.
If you’d like to explore how these fit into your situation, reach out to me here.
