Covered Call ETFs?

What about covered call ETFs for a part of your asset allocation? The S&P 500 Covered Call Fund (BEP) and the Enhanced S&P 500 Call Fund (BEO) each attempt to replicate the CBOE S&P 500 Buy Write Index. Each fund yields about 15% and trades within a few percent of NAV. During big down moves like the current market they tend to under perform SPY, but can later move back to parity. (See the first plot above.)

Another way to go might be the Madison/Claymore Covered Call Fund (MCN). The fund is not an S&P Buy Write fund. It is a large cap stock covered call fund. It yields 14% and trades at about an 11% discount to NAV. It has substantially under performed SPY over the last year. (See the first plot above.) The discount could begin to shrink if the market can begin to recover.

Want more diversification? The Cohen and Steers Closed End Opportunity Fund (FOF) is a fund that buys other closed end funds. Approximately 25% of the fund is invested in covered call funds. FOF yields 10% and trades at a 3% discount. (See the second plot above.)