As always, there are pros and cons to following a covered call ETF. Such ETFs, which tend to implement covered calls, tend to be more labor intensive, meaning higher management expense ratios (MERs) that could erode returns.
For some, the higher costs are well worth the price of admission, especially those who care more about monthly income payments and less about how many shares of an ETF rise or fall in a given quarter or year. While covered call ETFs may not be the most efficient way to invest for a chance at outsized total returns, they are excellent for some categories of income investors.
In this piece, we’ll look at two notable ETFs with monthly income that could be worth watching in January:
BMO Covered Call Utilities ETF
The BMO Covered Call Utilities ETF (TSX:ZWU) offers an impressive yield of 7.4% at the time of writing. Of course, yields were slightly higher a few weeks ago when utilities were in a trough. Regardless, I continue to think the defensive sector is a great place to invest as market volatility looks set to get a bit worse this new year.
Undoubtedly, the ZWU adds an extra layer of income and less volatility, thanks to the use of covered calls. The beta of 0.47 could make for an even more defensive price, as the risk of correction (and its severity) appears to increase with every rise in the broad TSX index.
Regardless, ZWU stands out as one of my favorite special income ETFs, not only because of its huge yield, but also because of the defensive properties of the names that make up the ETF. While the movements of covered call ETFs can be a bit unpredictable, I think long-term holders can feel like the substance sticks to the name.
BMO Covered Call Canadian Banks ETF
The BMO Covered Call Canadian Banks ETF (TSX:ZWB) was one of the better performing covered call ETFs in 2025, up nearly 28%. That’s a gain close to what the TSX Index clocked!
Arguably, the stellar performance of the Big Six Canadian banks is the main reason why the Covered Call Bank ETF is in the race. And while the yield, currently at 5.6%, seems quite low compared to other covered call ETFs, I still think the ZWB is an excellent way to balance capital gains and returns in the new year.
Of course, the big banks’ stocks were yielding about 5-6% a little over a year ago before their bull run. And while returns on individual banks are closer to 3 to 4% these days, I think the ZWB is an excellent way to achieve that same return. However, keep in mind that the ETF won’t be as popular as the individual bank stocks themselves, given the profit-eroding effects that covered calls have.
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