High-yield ETFs have been quite the buzz this year. While covered call ETFs (or premium income, as some are referred to) are really nothing new for the world of passive investors, I do think that many of the swollen yields have attracted investor attention due to the lower (and falling) yields, particularly in the defensive dividend stocks, which have also had decent years. Indeed, there seems to be somewhat less yield going around, and not enough to satiate some of the more aggressive passive income investors out there.
In this piece, we’ll check in on a high-yielding ETF that’s outpacing the S&P 500 so far this year. Indeed, the S&P has already passed the 10% gain mark, and there’s still more than a quarter to go before 2025 comes to a conclusion. It’ll be interesting to see how September shapes up for financial markets as traders return from their summer breaks, perhaps with the hopes of buying (or selling) stocks that have been sitting comfortably on the beach over the last two months or so.
Here’s an interesting 3.1%-yielding ETF that has what it takes to keep up with the S&P
In this piece, I won’t look at another hot covered call ETF because I think investors should seek out more traditional dividend ETFs to act as a foundation of their portfolios. Though covered call ETFs and their like can act as a great supplement, I do think it’s just a bit concerning that some folks on social media would be inclined to go all-in on such securities just because of the yield.
At the end of the day, covered call ETF yields work differently from more traditional dividend equity ETFs. Call option premiums don’t always sell for hefty levels. And when interest, momentum, and volatility dry up on the high-upside plays, some yield shrinkage is definitely possible. In any case, the Fidelity High Dividend ETF (NYSEARCA:FDVV | FDVV Price Prediction) stands out as one of the more interesting higher-yielding options out there to pick up over the S&P 500.
Why? The FDVV has been beating the S&P by a few basis points over the last three months (10.6% vs. 10.0% at the time of this writing). But with a far lower price-to-earnings (P/E) ratio (19.4 times trailing P/E) and, in my opinion, a more diversified sector mix (it’s not as heavy in the tech plays as the S&P), the FDVV stands out as an ETF I’d be more than comfortable hanging onto come the next AI-driven correction, meltdown, bursting of the bubble, or whatever you’d like to call it.
The tech scene looks frothy. That could weigh on the S&P’s returns potential moving into the final few months of 2025.
I have no idea how markets and Nvidia (NASDAQ:NVDA) stock will react to the GPU maker’s quarterly results. But I think the stakes are too high to be overweight technology, given the potential for a strong number to come up short of the sky-high expectations. If Nvidia falls, so, too, could the entire market, with tech and AI names taking the biggest gut-punches.
Either way, I view the financial services as great places to be right now, given the benefits the banks, insurers, credit ratings providers, and all the sort will realize as they incorporate more AI tools across their workflows. While the FDVV isn’t a financial sector ETF (thematic ETFs aren’t the best for beginner investors, in my view), I do appreciate the exposure to some of the names, which, I think, are still too cheap to ignore despite their recent outperformance.
With nearly 20% allocated to financial services and a still-decent 25% allocation to tech, I view the FDVV as a worthy performer that could outperform the S&P moving forward, especially if the bear returns and the bull goes into hibernation after a strong run in these past few years.
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