RYLD: 12% Yield + 8% Outperformance = A Nice Income Asset

RYLD is an ETF that holds stocks in the Russell 2000 index and writes call options on the index. The fund features a monthly distribution and has a current distribution rate of 12%.

The fund has delivered pretty good returns – it has outperformed its equity index so far this year by 8% and has also outperformed most other covered call ETFs.

Source: Systematic Income Funds Tool – Available for Systematic Income Premium Subscribers

A big part of the reason for this is the fact that Russell Index implied volatility trades at an elevated level relative to the Nasdaq and the S&P 500 which allows the fund to receive a higher premium for its calls, all else equal.

Many investors will go with covered call CEFs rather than opting for ETFs in this sector. However, that’s not at all an obvious choice because Covered Call CEFs:

  • are trading at expensive discount valuations
  • have higher fees than ETFs in the sector
  • have not outperformed ETFs in the sector despite active management

The current environment of elevated volatility and uncertain market regime is an attractive one for a fund like RYLD and it remains our pick in the Covered Call sector.


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