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XYLG: Another S&P 500 Covered Call ETF But With A Twist


  • The S&P 500 Covered Call & Growth ETF name hints at the twist. The index used does too: CBOE S&P 500 Half BuyWrite Index.
  • With the Index being critical to understanding how XYLG differs from its competitors, the Index is covered in detail and its performance versus the full BuyWrite Index is provided.
  • The article compares XYLG against XYLD, which covers 100% of its AUM and DIVO, an enhanced-income ETF that uses Call options and invests in a subset of S&P 500 stocks.
  • While history is short and no major pullback has occurred, for investors looking for 4% yield and willing to give up some appreciation, I would rate XYLG as Bullish.
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This article was written by

Retired Investor profile picture

Retired Investor has been investing since the 1980s and has a background in data analysis and pension fund management. He writes articles to help others prepare for retirement by investing in CEFs, ETFs, BDCs, and REITs. He is a long only investor and shares strategies for trading options with a focus on cash-secured-puts.

He is a contributing author to the investing group Hoya Capital Income Builder. Hoya specializes in the portfolio management of publicly traded real estate securities and dividend ETFs. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of SWAN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (13)

Consideration profile picture
is this not just a different version (though not by much) of JEPI?
Retired Investor profile picture
@Consideration IMO, they are very different approaches. Whereas they both invest based on the S&P 500, they differ after that. XYLG directly owns the stocks and writes Calls against half their holdings. JEPI uses Equity-Linked-Notes to generate income and holds only a subset of the S&P stocks. It will be worth watching how they move over time.
RZel profile picture
since I am not the options guru, I prefer pros to take care about trading. I have allocated just 3.4% of my liquid assets to these stocks (QYLD, RYLD), and I am planning to add XYLD, just a little)
Retired Investor profile picture
@zbatia Trading options definitely not for everyone. I restrict my exposure to about 5% of my account.
hafen profile picture
Great article.....it takes study to evaluate the similarities and differences before committing. This is a large commitment in my portfolios.
Retired Investor profile picture
@hafen They say having to many choices leads many investors to not making any. Thanks for reading.
Nice, well written article but with total assets of only $35MM caution is advised; mainly its liquidity and the wisdom of amassing a position large enough to move the needle in what amounts to a micro-micro cap.

And since more ETFs are being liquidated than created these days there's that risk as the sponsor can't be making much, if anything, even with a 60bp fee. For the time being I'll stick with 12 times larger, 5 star rated DIVO as an alternative.
Retired Investor profile picture
@RoyalAce The points raised are valid and should have been mentioned. I don’t think closer is likely in the near term as sponsor is adding ETFs in this space.
XYLG had ROC last year which many are looking for. As you pointed out almost none it seems so far which won't be known till year end.

When I looked at DIVO awhile back it had ROC for those looking for it.
@AlieGee You should understand that ROC in these funds comes from the premium of expired options which the IRS allows to serve as a reduction of cost basis even if the option itself was short term. For the ETFs/funds that do this it serves to improve tax efficiency of the investment vs straight dividend payers. As long as the payouts are competitive I appreciate the deferral of taxes.
Retired Investor profile picture
@RoyalAce Makes a difference in taxable accounts only but your point is correct that option premium ROC should be destructive as other ROC can be.
gastro4 profile picture
Thanks for the idea.
Retired Investor profile picture
@gastro4 Thanks for reading. I like covering new funds with a twist.
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