The Top Canadian Covered Call ETFs for Boosted Income

ByDan Kent Published On:

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        Key takeaways

        Enhanced Income Generation – All these ETFs utilize covered call strategies to generate additional income over dividends, making them attractive for yield-seeking investors.

        Sector & Geographic Diversity – The selection spans multiple sectors and regions—from technology and U.S. equities to European and commodity-related funds—providing diversified exposure.

        Balanced Trade-Offs – While covered calls help boost income and reduce volatility, they may cap potential upside during strong bull markets.

        One ETF I like way better than the ones on this list.

        Although I certainly advocate for a total return strategy when it comes to investing, I also realize that some investors may be willing to forego total returns to generate more income from their portfolios.

        This steady stream of income is predictable and can allow investors to withstand the volatility of the markets, all while having a stream of income in their accounts that can help them pay the bills or even buy more stocks.

        For this rationale, Canadian-covered call ETFs are gaining popularity at what I would deem a crazy pace. More and more fund managers are coming out with new ways to generate the maximum yield from their funds, all in an effort to make them more attractive to yield-focused investors.

        These Canadian ETFs often hold the same holdings as their non-covered call counterparts. The difference is that the covered call variants attempt to boost their distributions by collecting premiums by selling call options.

        To put it lightly, a lot of covered call funds are poor investments. Some are bordering on outright horrendous. For this reason, I’ve built an article highlighting some Canadian covered call ETFs that have provided solid returns and are structured somewhat reasonably.

        If you don’t know what a covered call options strategy is, I have an in-depth guide at the bottom of this article.

        Let’s dive right into the funds.

        The best covered call ETFs in Canada to buy right now

        Tech exposure with income boost

        BMO Covered Call Technology Fund Series ETF (TSE: ZWT)

        ZWT targets major North American technology companies, applying a covered call strategy to generate extra income. This ETF offers tech-sector growth potential while softening volatility through option premiums.

        • Blue-Chip Tech Holdings – The fund includes prominent technology companies that drive innovation and steady growth. The established market presence of these firms supports reliable dividend payments.
        • Income Enhancement Mechanism – By writing covered calls, the ETF generates additional premium income, which can be particularly valuable during periods of modest market returns.
        • Risk Mitigation via Options – The strategy helps cushion downside risk in volatile tech markets, offering a more stable return profile.
        • Dynamic Market Exposure – Investors get exposure to a sector known for rapid technological advancements and continuous product innovation.
        • Cost-Efficient Access – It provides an efficient way to tap into the tech sector without needing to pick individual stocks.
        • Innovation Cycles – Monitor developments in AI, cloud computing, and cybersecurity as growth drivers.
        • Tech Earnings Reports – Quarterly performance updates can influence option premiums and overall fund performance.
        • Regulatory Environment – Keep an eye on regulatory shifts that could affect tech giants.
        • Capped Upside in Strong Markets – The covered call strategy may limit participation in significant tech rallies.
        • High Sector Volatility – Tech stocks can be prone to rapid price swings, affecting overall returns.
        • Interest Rate Sensitivity – Higher rates may put downward pressure on high-growth tech valuations.

        Multi-sector diversified income enhancer

        Hamilton Enhanced Multi-Sector Covered Call ETF (TSE: HDIV)

        HDIV offers exposure to multiple sectors across North American equities while employing a covered call strategy to enhance income. It is designed for investors seeking broad market diversification coupled with improved yield.

        • Diverse Sector Allocation – The ETF invests in a broad mix of sectors, reducing the risk tied to any single industry. Diversification supports smoother returns over market cycles.
        • Enhanced Income via Covered Calls – By consistently selling call options, HDIV boosts overall yield even in sideways markets, providing extra cash flow.
        • Adaptive Market Strategy – The multi-sector focus allows the fund to adjust exposure based on market conditions, potentially mitigating downturns in individual sectors.
        • Income Consistency – Regular option premium income can help smooth the variability of dividend payouts.
        • Efficient Diversification – It offers a simple, one-stop solution for investors looking to combine diversified equity exposure with a consistent income stream.
        • Sector Rotation Trends – Watch for shifts in sector performance that could alter the ETF’s yield dynamics.
        • Overall Market Volatility – Increased uncertainty can enhance option premiums, benefitting income strategies.
        • Macro-Economic Indicators – Economic growth rates and inflation trends will affect dividend sustainability across sectors.
        • Market Downturns – Broad market declines may impact dividend-paying stocks across sectors despite the income boost from covered calls.
        • Underperformance in Bull Markets – The option-selling strategy might limit capital gains in rapidly rising markets.
        • Sector-Specific Risks – Even with diversification, adverse trends in key sectors can affect overall performance.

        High-yield U.S. equity income enhancer

        BMO US High Dividend Covered Call Series Units ETF (TSE: ZWH)

        ZWH focuses on high-dividend-paying U.S. stocks while applying a covered call strategy to generate extra income. It is ideal for investors seeking U.S. market exposure with a tilt toward income rather than pure capital appreciation.

        • Robust U.S. Dividend Yield – The ETF targets companies known for strong and stable dividend payouts, providing a solid income base.
        • Covered Call Income Strategy – Selling call options on U.S. equities adds a layer of premium income, enhancing total yield even when dividend growth is modest.
        • Attractive U.S. Market Exposure – Investors benefit from the stability and liquidity of large-cap U.S. stocks, which have a long track record of weathering market cycles.
        • Risk Management via Options – The strategy offers some downside protection during market corrections by offsetting losses with option premiums.
        • Efficient Diversification – It consolidates exposure to high-dividend U.S. stocks in a single fund, simplifying portfolio construction.
        • U.S. Economic Growth – Watch GDP and employment data, as they directly impact corporate earnings and dividend sustainability.
        • Interest Rate Movements – Changes in U.S. rates can affect both stock valuations and the relative attractiveness of dividend yields.
        • Sector Shifts within U.S. Equities – Trends in sectors like technology, healthcare, and consumer staples will influence performance.
        • Capped Upside Potential – The covered call approach may limit significant price appreciation during strong bull runs.
        • Sector Concentration – Heavy weighting in traditional high-dividend sectors may lead to exposure risks if those sectors underperform.
        • U.S. Regulatory and Tax Changes – Any shifts in policies affecting dividends or foreign investment may impact returns.

        European high-dividend income strategy

        BMO Europe High Dividend Covered Call Fd Srs ETF (TSE: ZWP)

        ZWP provides exposure to high-dividend European equities, combining stable payouts with additional income from covered calls. This ETF is designed for investors seeking diversification beyond North America with a focus on yield.

        • Geographic Diversification – Exposure to European companies reduces reliance on North American markets, offering a hedge against regional risks.
        • Stable Dividend Focus – European firms included in the fund are known for consistent dividend payments, attracting yield-oriented investors.
        • Enhanced Income with Covered Calls – The use of options generates extra income, boosting overall yield even when stock price growth is moderate.
        • Currency Diversification – Investors gain indirect exposure to Euro and Pound fluctuations, which can offer additional diversification benefits.
        • Defensive Characteristics – European dividend-paying companies often exhibit more defensive traits in volatile market conditions.
        • European Economic Policy – Fiscal and monetary policies in Europe will influence dividend sustainability and stock performance.
        • Currency Fluctuations – Exchange rate movements can impact returns for Canadian investors, making it important to monitor currency trends.
        • Sector-Specific Dynamics – Industries like utilities, telecommunications, and consumer goods can signal broader economic trends.
        • Economic Slowdown in Europe – Slower growth in the region could pressure dividend growth and stock valuations.
        • Currency Risk – Exchange rate volatility might erode returns for non-Euro investors.
        • Regulatory Changes – Shifts in European financial regulations may affect the dividend policies of constituent companies.

        Domestic high-yield income play

        BMO Canadian High Dividend Covered Call Fd Srs ETF (TSE: ZWC)

        ZWC targets high-dividend-paying Canadian companies while applying a covered call strategy to further boost income. It is tailored for investors focused on domestic yield and income stability.

        • Strong Domestic Dividend Yield – The ETF selects Canadian companies with proven track records of reliable and growing dividends, ensuring a steady income stream.
        • Enhanced Yield via Options – The covered call strategy provides additional income by selling call options on the underlying stocks, which can help smooth returns.
        • Exposure to Stable Canadian Sectors – Typically includes financials, utilities, and energy, sectors known for dividend resilience and stability.
        • Risk-Adjusted Returns – The additional income from covered calls may mitigate some of the risks associated with market downturns.
        • Simplified Income Investment – Offers a straightforward solution for investors looking to capture domestic dividend income without managing individual stocks.
        • Domestic Economic Health – Monitor Canada’s GDP and employment trends, as these impact corporate earnings and dividend policies.
        • Sector Performance – The performance of key sectors like financials and energy is critical to maintaining dividend levels.
        • Interest Rate Adjustments – Changes in Canadian rates can influence the attractiveness of dividend yields compared to fixed-income alternatives.
        • Market Downturns – Even high-quality dividend stocks can underperform during economic slowdowns.
        • Limited Capital Appreciation – The income focus may come at the expense of significant price appreciation during bull markets.
        • Sector Concentration – Overweighting certain domestic sectors could expose the fund to specific market risks.

        U.S. equity income with call overlay

        Hamilton Enhanced U.S. Covered Call ETF (TSE: HYLD)

        HYLD focuses on U.S. equities with an emphasis on dividend yield, augmented by a covered call strategy to further boost income. It provides a U.S.-centric income play with an emphasis on stability and yield enhancement.

        • Broad U.S. Equity Exposure – The ETF invests in a diversified basket of U.S. companies, ensuring robust exposure to multiple sectors and industries.
        • High Dividend Focus – Emphasizes stocks with attractive dividend yields, appealing to income-seeking investors in a low-interest-rate environment.
        • Additional Premium Income – The covered call overlay generates extra income through option premiums, potentially reducing volatility.
        • Downside Cushioning – The income generated through calls can help offset losses during market corrections, enhancing risk-adjusted returns.
        • Efficient U.S. Market Access – Provides a cost-effective way to tap into the U.S. dividend landscape without selecting individual stocks.
        • U.S. Corporate Earnings – Strong earnings reports can sustain dividends and support the underlying equity values.
        • Policy and Tax Changes – Monitor U.S. regulatory shifts that could impact dividend distributions or option trading.
        • Market Sentiment and Volatility – The success of the covered call strategy is closely tied to overall market conditions and investor sentiment.
        • Capped Upside Potential – Like other covered call strategies, HYLD may limit capital gains during strong market rallies.
        • Sector Overweighting – Even with diversification, significant exposure to certain sectors could present concentration risks.
        • Market Volatility – Sudden downturns in the U.S. market could affect both dividends and option premiums.

        Gold producers with call income

        Global X Gold Producer Equity Covered Call ETF Class E (TSE: GLCC)

        GLCC invests in leading global gold producers and employs a covered call strategy to enhance income. This ETF targets investors interested in the gold sector’s defensive qualities while capturing extra premium income.

        • Exposure to Gold Mining Leaders – The ETF holds shares of top gold producers, benefiting from the precious metal’s role as a safe-haven asset.
        • Income Enhancement Through Covered Calls – Selling call options on mining stocks generates additional cash flow, which can partially offset lower growth periods.
        • Defensive Sector Positioning – Gold producers often outperform in times of economic uncertainty, offering a hedge against market volatility.
        • Inflation and Currency Hedge – The performance of gold producers is typically uncorrelated with traditional equities, providing diversification benefits.
        • Attractive for Risk-Averse Investors – The combination of defensive exposure and income enhancement makes it an appealing choice for conservative portfolios.
        • Gold Price Dynamics – Monitor global gold price trends, which directly impact the profitability of gold mining companies.
        • Geopolitical Uncertainty – Tensions and economic instability tend to boost gold prices, benefiting the ETF.
        • Mining Production Trends – Operational efficiencies and production levels at gold mines influence overall performance.
        • Commodity Price Volatility – Sharp swings in gold prices can lead to significant fluctuations in the ETF’s net asset value.
        • Operational Risks – Gold mining is subject to risks such as labor disputes, regulatory changes, and environmental issues.
        • Limited Capital Appreciation – The covered call strategy may limit upside gains in periods of strong gold price rallies.

        Energy sector yield with option overlay

        Global X Can Oil and Gas Equity Covered Call ETF Class E (TSE: ENCC)

        ENCC provides exposure to Canadian oil and gas equities while employing a covered call strategy to boost income. The ETF is designed for investors seeking yield from the energy sector, balancing volatility with enhanced cash flow.

        • Focus on Canadian Energy Leaders – The ETF targets well-established oil and gas companies in Canada, known for stable production and dividend policies.
        • Income Augmentation via Options – The covered call overlay helps generate additional income, enhancing the overall yield, especially in flat or moderately rising markets.
        • Resilience in Energy Markets – Energy companies can perform well during periods of rising commodity prices, and the ETF benefits from this dynamic.
        • Diversified Energy Exposure – While centered on oil and gas, the ETF offers exposure to a mix of upstream and midstream companies, reducing single-stock risk.
        • Attractive Yield Alternative – Provides a compelling alternative for investors seeking high yields in an environment where traditional fixed-income may offer less return.
        • Oil and Gas Price Trends – Global energy prices are a key driver, so monitoring OPEC decisions and geopolitical events is important.
        • Energy Transition Debates – Watch how regulatory shifts toward renewable energy affect the long-term outlook of fossil fuel companies.
        • Commodity Market Volatility – Increased volatility can enhance the value of option premiums, benefitting the covered call strategy.
        • Commodity Price Fluctuations – Volatility in oil and gas prices can lead to significant valuation swings for energy companies.
        • Regulatory and Environmental Risks – Energy companies face increasing scrutiny regarding environmental practices, which may impact profitability.
        • Capped Gains – The use of covered calls can limit capital appreciation during robust bull markets in the energy sector.

        Lets discuss options contracts further

        What is a call option?

        Call options are a contract that gives the buyer of the option the right but not the obligation to purchase stock from the seller of the option at a set price for a limited amount of time.

        Put options are the opposite, where the buyer of the option has the right to sell a stock to the seller of the option. However, that’s a topic for another article.

        The call option buyer pays the seller a premium for the right. As a generic example, you may pay a $100 premium right now to have the right to purchase 100 shares of stock ABC by March 19th, 2027, at a particular price called the strike price.

        Or, as the seller of a call option, you will receive $100 now but have to be willing to sell 100 shares of ABC stock to the option buyer on or before March 19th, 2027, at the strike price.

        Investors can sell call options on stocks they own, known as a covered call option, or on stocks they do not own, known as a naked call option.

        What is a covered call investing strategy?

        As I mentioned, you need to own the underlying stock on which you’re selling the call option for it to be classified as a covered call. So, why are we doing this?

        With a covered call strategy, we hope to collect the option premium we receive by selling that cover call and hanging on to the stocks we own. Let’s review a simplified example of how a covered call strategy can benefit and hurt you, as there are two sides to this coin.

        We’ll assume that we own 100 shares of stock ABC, trading at $100 and paying a $5 per year dividend.

        We’re looking to squeeze out some extra income from this holding, so we decided to sell some covered calls with a $110 strike price, expiring in a few months. Let’s assume, for this example, we’ve collected $200 in premiums.

        The pros of covered calls

        If the stock price trades sideways for the next two months, we’ll have collected $200 in premium income and still hold our 100 shares of stock ABC.

        Over the year, this can add considerable income to our total “yield” of the 100 stocks. Although the company isn’t paying us anymore, we’re collecting money from investors speculating or hedging by buying our call options.

        Remember that you can take more or less risk by adjusting your strike price. For example, a $150 strike price will likely expire useless, but you’ll collect significantly less premium than one with a $105 strike.

        This is primarily derived from an option’s time value, intrinsic value, and volatility. But that is a tutorial for another article.

        The cons of covered calls

        If company ABC issues strong earnings over the next few months and the stock rises to $130, we’ll be forced to do two things. We will have to repurchase a call option to counter the sale, or we will have the option we sold exercised, and we’ll be forced to sell the stocks at our strike price.

        In this case, we’ll be forced to sell a $150 stock for $130, losing $2000.

        This is the primary case against a covered call strategy. In rising markets, selling covered calls is typically a losing proposition as they cap your upside potential. However, during bear markets, they can lower your downside risk and increase your income.

        With that being said, who are Canadian covered call ETFs for?

        I’m a strong advocate for total return investing. That means that whether it is through capital appreciation, dividends, or interest, all that matters in terms of investment results, in the end, is your final return.

        However, covered call ETFs are excellent for those willing to sacrifice overall gains for more income. Yes, your upside is capped due to the covered-call nature of the fund, but you’ll also have more dollars in your bank account to fund your retirement or pay your bills.

        You will also have a little reprieve regarding market volatility as they have some downside protection.

        **Of note, you must review each fund’s prospectus. They will have different strategies, and I recommend becoming familiar with them before buying one. If one would like to expand their knowledge in ETFs, these are great research points, along with niche growth ETFs, all-in-one ETFs, dividend ETFs, etc.

        This list is by no means an all-in-one guide

        There are way too many covered call ETFs here in Canada to ever have a definitive list of the top options. But it should at least help you begin your research into a prospect that works for you or presents some info to get your feet wet if you are just learning how to buy stocks.

        You’ll also notice that through the majority of this article, there is a common theme. BMO and Hamilton have a stranglehold on the covered call ETF market here in Canada. Most of their funds have the most significant AUM and trading volume and are among the best managed.

        Are you really into income ETFs? Don’t miss the best high-yielding ETFs in Canada.

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