The Nasdaq 100 Covered Call ETF (QYLD) has slowly become one of the biggest covered call ETFs in the market. It has grown to accumulate over $8.45 billion in assets, making it one of the top active funds in Wall Street.

This growth happened because of its substantial dividend yield, which stands at 11.54% and is higher than the 7.5% that high-yield corporate bonds. It is also significantly higher than the ten-year government bonds, which are yielding over 4.5%.

In theory, the QYLD ETF should have better returns than the Invesco QQQ (QQQ) and the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ). The latter two yield 0.55% and 9%, respectively. 

In practice, however, the total return of the QYLD has been much lower than that of QQQ and JEPQ, as I warned here. In 2024, the QYLD fund has had a total return of 6.70% while QQQ and JEPQ has 7.20% and 9.40%.

Its underperformance goes from way back. In the past five years, the find has returned 40.50% while QQQ has jumped by 144.50%. JEPQ has been in the industry since 2022 and has returned 34.7% since inception.

QYLD ETF vs JEPQ vs QQQ

QYLD is even more expensive to hold compared to the other two. It has an expense ratio of 0.61%, while JEPQ charges 0.35% and QQQ 0.20%.

For starters, QQQ, QYLD, and JEPQ are all highly popular ETFs. QQQ tracks the Nasdaq 100 index, which has a long track record of beating the other common indices like the S&P 500 and Dow Jones.

QYLD and JEPQ, on the other hand, are actively managed covered call ETFs. The concept behind these funds is relatively simple in that the manager buys the underlying assets of an index and then sells call options of the index. 

QYLD also uses other tools to maximise its returns. For tax reasons, it uses a strategy known as mixed straddle, where the options contracts are treated as contracts and stocks are treated as non-securities. 

Therefore, as I recently wrote on JEPI, history shows that normal passive ETFs like QQQ and SPY generally do better than most active funds. As such, I believe that it makes more sense to allocate funds in QQQ or any other Nasdaq 100 ETF instead of JEPQ and QYLD.

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