What a covered call overlay gives up
Nine Canadian covered call ETFs measured against their own sponsor's plain fund over the same holdings. What the options overlay cost, year by year.
September 19, 2026 · 9 min read
A covered call fund sells away part of its upside in exchange for cash today. Covered call ETFs in Canada, explained sets out that mechanic. This page does the one thing the mechanic cannot: it measures what the trade actually cost.
How this is measured
Comparing a covered call fund to a broad index measures the sector, the weighting, the fees and the overlay all at once. So each fund here is compared against its own sponsor's plain fund over the same holdings -- BMO's covered call Canadian bank fund against BMO's plain Canadian bank fund, and so on. What is left between them is mostly the options overlay.
Every figure is a total return, including distributions, computed from adjusted closing prices as of 2026-09-18. Two things sit inside these numbers and cannot be pulled out: the fee difference between each pair, and the fact that these were mostly rising markets, which is exactly when this strategy underperforms by design.
What the overlay cost, year by year
Each cell is the covered call fund's total return, then its plain sibling's.
BMO
| Pair | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Canadian banks (ZWB / ZEB) | 31.1 / 39.7 | -12.6 / -12.4 | 6.1 / 10.2 | 19.5 / 24.8 | 35.1 / 43.7 |
| Canadian high dividend (ZWC / ZDV) | 24.8 / 27.3 | -4.1 / -2.2 | 6.8 / 7.5 | 11.9 / 16.5 | 22.4 / 28.1 |
| US high dividend (ZWH / ZDY) | 25.4 / 24.3 | -2.1 / 0.2 | 3.6 / 3.3 | 18.2 / 24.5 | 6.4 / 10.2 |
| US banks (ZWK / ZBK) | 36.8 / 40.1 | -21.6 / -22.0 | -16.4 / -8.4 | 39.1 / 43.5 | 16.7 / 16.3 |
| Dow 30 (ZWA / ZDJ) | 21.2 / 21.1 | -8.7 / -9.9 | 12.3 / 14.1 | 11.9 / 13.1 | 11.2 / 12.9 |
Global X
| Pair | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| S&P/TSX 60 (CNCC / HXT) | — | — | 6.8 / 11.4 | 14.9 / 21.3 | 19.1 / 28.1 |
| S&P 500 (USCC / HXS) | — | — | 13.6 / 22.4 | 31.1 / 35.0 | 9.4 / 12.1 |
| Nasdaq-100 (QQCC / HXQ) | — | — | 35.0 / 50.8 | 34.1 / 37.5 | 11.9 / 15.1 |
| Canadian banks (BKCC / HEWB) | — | — | 5.0 / 10.2 | 17.3 / 24.8 | 28.3 / 43.8 |
Annualised
| Pair | Sponsor | Window | Covered call | Plain |
|---|---|---|---|---|
| Canadian banks | BMO | 5y | 16.1%/yr | 20.8%/yr |
| Canadian high dividend | BMO | 5y | 11.9%/yr | 16.3%/yr |
| US high dividend | BMO | 5y | 10.1%/yr | 13.7%/yr |
| US banks | BMO | 5y | 6.4%/yr | 9.7%/yr |
| Dow 30 | BMO | 5y | 7.5%/yr | 8.8%/yr |
| S&P/TSX 60 | Global X | 4.2y | 12.9%/yr | 18.3%/yr |
| S&P 500 | Global X | 4.2y | 16.4%/yr | 20.7%/yr |
| Nasdaq-100 | Global X | 4.2y | 22.2%/yr | 26.7%/yr |
| Canadian banks | Global X | 4.2y | 16.9%/yr | 25.3%/yr |
Global X rows begin in 2023 because those funds changed their objectives on 27 June 2022, so earlier data belongs to a different portfolio.
Reading the table
Both sides made money in most years. This is not a table of losses. In 2025 the covered call bank fund returned 35.1% while its plain sibling returned 43.7%. Both are good years. One is better, and the difference is the upside that was sold.
The cost compounds. Over five years the covered call bank fund returned 16.1% a year against 20.8%. Annually that gap looks survivable; held long enough it removes the part of the return that compounds most, which is what the mechanic predicts.
The cushion is smaller than the marketing suggests. 2022 was a falling year and the two bank funds were a coin toss, -12.6% against -12.4%. In 2023 the US bank pair went -16.4% against -8.4%, the covered call fund falling roughly twice as far. Selling upside buys very little downside protection, and falling years are where that shows.
The overlay costs least where markets move least. The Dow pair is nearly a tie, 7.5% a year against 8.8%, and both sides of it are currency-hedged so the comparison is unusually clean. A slower-rallying index gives up less, because there is less rally above the strike to give away.
How a fund writes matters more than whose name is on it
Both sponsors run a Canadian bank covered call fund over the same banks. They write options differently, and both disclose it: BMO writes on about half the portfolio at strikes well above the price, Global X on a similar share of the portfolio at strikes much closer to it.
Over the same window BMO's bank fund returned 16.1% a year against its plain sibling's 20.8%. Global X's returned 16.9% a year against its sibling's 25.3%. The fund writing closer to the money gave up substantially more, on the same underlying banks over the same period.
That is the practical finding. Two funds can run the same strategy over the same holdings and land in different places, and how far above the price a fund writes is the lever -- not which sponsor is on the label. Each fund states it in its own documents.
What this does not tell you
- It covers two sponsors, not the category. BMO and Global X are the only Canadian sponsors running both a passive index fund and a covered call version of the same exposure. Every other sponsor runs an actively managed covered call mandate with no passive twin, so there is nothing to measure them against. Nothing here describes those funds.
- Fees are inside every number. Part of each gap is the management fee difference within the pair rather than the overlay.
- These are mostly rising markets. A flat or falling stretch would narrow these gaps and in places reverse them, which is the trade working as designed rather than a malfunction.
- It says nothing about what you should own. A fund that gives up upside for cash may be exactly right for someone who wants the cash. What the table gives you is the price of that choice, not the choice.
The distribution side of this, and what it does to your cost base, is covered in covered call ETFs in Canada and return of capital and your cost base.
Figures are computed by Luum from adjusted closing prices and regenerated from source rather than quoted from any fund company. This page is educational, it does not recommend any fund or strategy, and past returns do not predict future ones.
Common questions
Do covered call ETFs underperform?
In the periods measured here they trailed their own sponsor's plain fund over the same holdings in most years, and the gap widened the longer the holding period. That is the strategy working as designed rather than a fault: it sells upside above a strike price in exchange for cash now, so it gives up most in exactly the years that rally hardest. A flat or falling market narrows the gap and can reverse it.
Do covered call ETFs protect me in a downturn?
Far less than the marketing implies. In 2022, a falling year, the two Canadian bank funds measured here were effectively tied. In 2023 the US bank covered call fund fell roughly twice as far as its plain sibling. The premium collected is a small cushion, not protection, because the fund still owns the underlying shares all the way down.
Why do two covered call ETFs on the same sector perform differently?
Mostly because of how they write the options. A fund writing calls at strikes close to the current price collects more premium and gives up more of any rally; one writing further above the price gives up less. Measured over the same window on the same Canadian banks, the fund writing closer to the money trailed its plain sibling by substantially more. Each fund discloses its approach in its own documents.
This article is educational and general in nature. It is not investment, tax, or legal advice, and it does not take your own circumstances into account. Verify tax treatment with the CRA or a qualified tax professional.