Google the words “passive income” with the title in an online search, and you’ll get about 437,000 results. Do the same for anywhere in an article, and it jumps to about 20 million. 

In recent years, affordability issues have placed a greater emphasis on earned income outside a regular 9-to-5 job. It’s doubtful that this will change in the years ahead, regardless of whether inflation completely disappears.

Americans are hooked on the idea. It’s not enough for individuals to make their 6-8% capital appreciation each year. Retail investors, whether DIY or Advisor-based, want more passive income. 

One way to do that is through dividend-focused ETFs. This approach has been around for decades, probably since the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) was launched in 1993.  

In recent years, various income-generating ETFs have been created that go beyond the SPY’s traditional 1.17% dividend yield. Some of them are good long-term investments. 

These five top ETFs are worth buying for huge passive income.  

Key Points About This Article:

• Covered Call ETFs can be a successful strategy for adding passive income.  
• Closed-end funds deliver exceptional yield at a discount.   
• A fixed-income strategy with long-term in-the-money call options provides income with less undefined risk.
• Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks” now.

Global X Offers Income ETFs Beyond Ordinary

Global X has become one of the world’s largest ETF providers by offering investors of all stripes a differentiated set of opportunities to generate passive income. One size does not necessarily fit all. 

Covered Call ETFs have become a big deal with investors. These funds overlay the use of call options sold to generate income from stocks in a particular index. Global X offers nine based on popular passive indexes such as the S&P 500 and another seven that combine a covered call strategy with a growth strategy to generate above-average income and capital appreciation. 

These two ETFs will be the first of 5 ETFs to make huge passive income.

Global X S&P 500 Covered Call ETF (NYSEARCA:XLYD) has existed since June 2013. It has $2.88 billion in net assets and yields 9.08%. If you invest $10,000, that’s an additional $791 in annual income beyond SPY. The ETF tracks the performance of the Cboe S&P 500 BuyWrite Index. Since inception, through Oct. 31, it’s generated an annualized total return of 7.54%.

If you’re into small-cap stocks, the Global X Russell 2000 Covered Call & Growth ETF (NYSEARCA:RYLG) was launched in October 2022. It has a tiny amount of net assets–$7.12 million as of Nov. 12–but yields 6.57%. 

The ETF tracks the performance of the Cboe Russell 2000 Half BuyWrite Index, a combination of the Global X Russell 2000 ETF (NYSEARCA:RSSL). It also sells call options on 50% of RYLG’s portfolio value.  

So, the big difference between the two ETFs is that XLYD is all about income, while RYLG provides income and exposure to 50% of the Russell 2000’s upside. This overlay can provide income and capital appreciation if you’re into growth. 

These 2 High-Yielders Buy at a Discount

Are you familiar with Closed-End Funds? 

These investment funds raise capital through IPO offerings by selling a fixed amount of shares that don’t increase over time, avoiding redemptions. The shares trade like stocks, often at a discount to their net asset value.

The Invesco CEF Income Composite (NYSEARCA:PCEF) was launched in February 2010. The fund-of-funds has $818 million in net assets and yields 8.59%. 

It tracks the performance of the S-Network Composite Closed-End Fund Index, whose 113 current holdings are selected from a universe of approximately 200 U.S. closed-end funds that trade on North American stock exchanges, have net assets over $100 million, charge 1.25% or less in fees, and reasonable liquidity. 

PCEF currently trades around its net asset value of $19.56 a share.

The second CEF ETF is the Saba Closed-End Funds ETF (Cboe BZX:CEFS). Launched in March 2017, it has $238 million in net assets and yields 7.89%. 

CEFS is actively managed to generate high income through closed-end funds trading at a discount to net asset value. Saba Capital Management L.P. is the fund’s investment manager. Founded in 2009, it manages more than $5 billion in assets under management. 

Saba’s proprietary active management of the ETF has delivered an annualized total return of 11.30% since its inception. As of Sept. 30, it had 112 closed-end funds in its portfolio. The ETF traded at an 8.3% discount to net asset value.

A Fixed Income Play Combined With Equity Upside Through Call Options

Unlike covered call ETFs, the Aptus Defined Risk ETF (Cboe BZX:DRSK) uses an actively managed fixed-income strategy to generate income layered with an equity play using call options.   

Since August 2018, the ETF has accumulated nearly $1 billion in net assets and yields 3.18%.

In summary, the fund’s managers invest in a diversified portfolio of intermediate-term, investment-grade corporate bonds using a traditional “bond ladder” to deliver annual income without long-duration risk. They then buy into 10-20 large-cap equities through intermediate-term, in-the-money call options, using 10% or less of their capital to generate profits. 

Since inception, it’s generated an annualized total return of 5.14% through Oct. 31. However, in the past decade, it’s had six years, including 2024, with annual returns of 15% or more, with minimal undefined risk. Hence the name.

It’s an excellent ETF for conservative, risk-averse investors. 

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