Trade-offs of Covered-Call Strategies

This week, we’re looking back at three discussions we held earlier this year on Investing Insights about exchange-traded funds that income investors might find attractive. Morningstar ETF specialists, Bryan Armour and Dan Sotiroff, talked about dividend, bond, and covered-call ETFs in 2025.

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On this episode:

00:00:00 Welcome

00:01:33 Dividend investing can result in exposure to factors like value, quality, and low volatility. Can you briefly explain one, what is factor investing, and then where do dividend ETFs typically land?

00:03:21 How do you find a dividend ETF that provides the optimal, or just rightamount, of factor exposure? And what should appear on our checklist? 

00:04:40 Four dividend ETFs hold Morningstar’s Medalist Rating of Gold. Let’s start with the two dividend growth ETFs from Vanguard that hold these marks.

00:05:17 Explain why Vanguard’s top dividend income strategy also impressed Morningstar analysts.

00:06:07 The final and fourth Gold-rated dividend ETF mixes both income and growth strategies. Talk about the one from Schwab.Bond ETFs are having a banner year. Why are investors turning to these investments?

00:09:01 What makes a core bond ETF a solid portfolio building block?

00:10:02What’s the top idea that’s received high marks from Morningstar?

00:11:39We’re shifting from the least risky to the next level up, core-plus. What do these bond ETFs typically offer that an index-tracking ETF does not?

00:11:21 Can you tell us one intermediate core-plus bond ETF that’s earned a Gold rating from Morningstar?

00:11:56 Multisector bond ETFs take on a bit more risk than the previous two categories, and that comes with an expectation of more income. Should income investors skip the others and start here?

00:13:11It’stime for the third top idea. What multisector bond ETF should folks consider?

00:13:36 High-yield bond ETFs are the riskiest among the categories we’re discussing today. What additional risks are investors taking on for the juicy yields?

00:14:42 Morningstar does not currently rate any actively managed high-yield bond ETFs. Is there one that income investors should watch?

00:16:41What’s making covered-call ETFs so popular in 2025?

00:17:09 Their yields lookvery high. What is driving them?

00:18:31 What types of trade-offs are investors making?

00:19:51 Which covered-call ETFs do Morningstar analysts consider a solid choice for investors, and why?

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