This Funds Yields 10%+ while Outperforming the S&P 500? (OVL ETF ANALYSIS!)

Added: 2026-05-22

[00:00:00]Covered call ETFs are continuing to explode in popularity. Back in 2020, there is less than 10 billion in assets under management for these types of funds. And now there's over 140 billion.

[00:00:11]And in fact, I've been building out a database over on dividendology.com tracking over 70 different covered call ETFs. And what I found is very interesting. Before we get started, I want to be clear that this is a paid sponsorship. Dividendology was provided monetary compensation by Liquid Strategies for this video. There's plenty of very high yielding covered call ETFs, but the reality paints a different story. Many covered call ETFs have a poor history where the share price continues to decline. And as a result of that net asset value decline, we can see the distributions from these funds continue to decline along with it.

[00:00:46]However, I recently added a new fund to the dividendology covered call ETF database. This is a fund that's currently yielding over 10% and pays out monthly. And believe it or not, based on historical data since fund inception in 2019, the fund has actually outperformed the S&P 500. And while there's no doubt past performance is certainly not indicative of future performance, but there's no doubt this type of strategy is interesting. And the fund I'm talking about is none other than OVL from Liquid Strategies. If we go ahead and zoom in and scroll down just a little bit, you can see it right here. the Overlay Shares Large Cap Equity ETF that currently has a distribution rate of slightly over 10% and has amassed around 236 million in assets under management.

[00:01:29]So, in this video, we're going to be taking a deep dive into this fund, studying how the fund is structured, reviewing the fund's fact sheet, taking a look at their prospectus, and seeing how they've been able to achieve these results. I also recently interviewed the head of Advisor Solutions for this ETF, and thank you to Liquid Strategies for sponsoring this video. Because this is a sponsored video, I'm not looking to talk positively or poorly about this fund, but to simply give you the facts. Now, let's go ahead and dive in. Now, immediately, one of the things that you'll notice when looking at this fund is if we look at the trailing 12-month yield, it's currently showing 5.44%.

[00:02:04]But this is a little bit misleading. Let me show you why. in my recent interview with Eric McAdle. The team has historically focused on total return as we can see from their website, but recently updated the distribution policy by moving to monthly payments and distributing a greater portion of the fund's option premium and realized gains rather than retaining those amounts within the fund. So, this fund is really going through a bit of a shift right now. The reason we see a trailing 12-month yield of just 5.44% 44% is because if we go and look at the dividend history here on Seeking Alpha, you can see they just started making monthly distributions back in January of this year. That's the reason most softwares are currently showing what's technically not the correct yield because they've shifted their distribution policy. In fact, if we look on Liquid Strategies homepage at Overlay Shares Large Cap Equity ETF, you can see their distribution rate is sitting at 10.16% a double-digit rate. And on top of this, Morning Star has given this fund a five-star rating. This is the overall rating based on risk adjusted returns among 82 funds in the derivative income category. That's the best rating that you can receive. So, how exactly are they trying to achieve strong total returns while making these large distribution payments? Well, if we jump over to the fact sheet, we can see the overlay shares large cap equity ETF seeks to deliver higher current income and total return than the S&P 500 total return index. Now, obviously that sounds like a bold claim. In fact, if we scroll down, you can see since 2019, OVL net asset value returns is sitting at about 17.03% net of fees, while the S&P 500 is sitting at about 16.14%.

[00:03:41]Again, past returns are not indicative of future returns, but it is impressive.

[00:03:46]So when you invest into this fund, you get diversified broad market US large cap equity exposure, excess return generated through option premium collection, and it complements traditional factors such as value and growth. So now we understand they're running an option strategy on the S&P 500. But the reality, as you should probably know by now, is that most covered call ETFs severely limit their upside and as a result over the long term typically underperform their underlying index. So how is OVL different? So again, that's exactly what I asked Eric in my interview. They start with passive exposure to the market, typically something like Vanguard's S&P 500 ETF. So investors are getting standard equity beta. Essentially, that means typical levels of volatility. But then on top of that, this is where things get interesting. They run a short-term ladder put spread strategy on the S&P 500. If the market is at 100, they sell a put slightly below that level and buy another put further down as protection. The premium we collect from selling the higher strike is greater than what we pay for the hedge.

[00:04:46]So there's a net income component built into every trade. We run this continuously recycling positions every couple of weeks. Because of how markets behave, this setup allows us to generate income in most environments where the market is up, flat, or even modestly down. So how is this different from covered calls? That's what I wanted to note. So I stated it seems like the big difference versus a lot of other income ETFs is that you're not capping the upside. And Eric said that's exactly right. Most income ETFs rely on covered calls, which means they're selling away some of their upside. We're doing the opposite. We're selling puts instead of calls. All of a sudden, the performance we've seen from this fund is starting to make sense. Now, if you've been watching the channel for a while now, you know, after understanding a little bit about the option strategy, there's one question in particular you should ask, and that question is, what is the portfolio options coverage? A lot of the times, this is going to help indicate how much income a fund can actually generate. So I started digging through the prospectus and one of the things I found is the fund's overlay strategy seeks to generate income for the fund by utilizing a put spread consisting of the sale of exchange listed short-term put options as we already saw with a notional value up to 100% of the fund's net assets and the purchase of an identical number of short-term put options with a lower strike price. So essentially most the portfolio is having options written on it in a covered call strategy. This would severely limit upside, but not for OVL, as the strategies utilize put spreads. I've seen other research stating that management typically sells these put options on 75 to 100% of the entire portfolio as stated in the prospectus.

[00:06:21]Now, of course, we need to understand what the potential risks are as well.

[00:06:24]And I asked exactly that in my recent interview. Eric said the main risk is pretty straightforward. It's sharp drawd downs. If the market sells off quickly and moves through those put spreads, we'll take losses on those positions.

[00:06:36]That said, those losses on the options are capped. We're not taking unlimited downside options risk. And in those environments, volatility increases, which means future trades become more profitable. It's important for us to remember more volatility with option strategy typically means more premium is generated, typically meaning higher distribution rates. So, while you might see short-term underperformance during a draw down, the strategy tends to recover relatively quickly as markets stabilize.

[00:07:02]Keep in mind, if you ever want to dive into these actual option strategies even more, you can see exactly what those option strategies look like at any given point on Liquid Strategies website. You can see the two options being written right here at any given point in time.

[00:07:15]Now, if you're anything like me, yes, high income is definitely important.

[00:07:19]It's something that I certainly look for, but I care just as much about the sustainability of that income as well, which is unfortunately where a lot of covered call ETFs or option income ETFs start to fall. So again, I wanted to ask Eric about this. If we go through a prolonged down market, what happens to that 10.5% yield? And I love this response. He said, "Our approach is to prioritize consistency. We don't want to ever be in a position where we're cutting distributions every time the market pulls back. So even in a down market, we would look to maintain the payout over time. As markets recover, the NAV recovers as well, and the strategy continues to compound. And perhaps most importantly, he stated, the biggest difference with OVL is they're not trying to maximize yield at the expense of everything else. Their goal is to deliver a combination of high income and strong total return, which of course is exactly what was stated on the fund's fact sheet. So there's no doubt this fund is not on a lot of investors radar right now because they recently adjusted how returns are distributed to shareholders at least from the perspective of how they deliver their total returns. The distribution rate is now sitting at double digits and if they continue to utilize their push spread strategy and we remain in a similar market environment then there's certainly a possibility that the results remain strong. So, with that being said, I'm happy to have added it to the Dividendology Covered Call ETF database.

[00:08:37]And this is a fund that I'll be watching very closely moving forward. If it's not on your radar, it may be worth learning more about. So, go ahead and let me know what you think of Overlay Shares Large Cap Equity ETF, stock ticker OVL, in the comments down below. I'll be sure to leave a link to the funds prospectus and fact sheet in the description as well.

[00:08:54]Again, thank you to Liquid Strategies for sponsoring this video. But with all that being said, thank you guys so much for watching and please don't forget to like and subscribe to the