Fidelity's FYEE fund reports a 9.1% trailing yield against a 6-8% payout target

Fidelity Investments' FYEE ETF posted a trailing 12-month annualized yield of 9.1%, above the 6% to 8% payout it targets, according to Fidelity portfolio manager and derivatives analyst Eric Granat. He discussed the fund on a TMX VettaFi webcast.

More than half of financial advisors — 52.9% — report using covered call derivative income strategies to generate durable yield in client portfolios, according to the same webcast.

Granat gave the supply side: of more than 1,000 ETF launches over the past year, over 50% incorporated derivatives.

Granat described the fund's design as deliberately avoiding deep at-the-money options, which cap upside in the pursuit of double-digit yields.

Morningstar's covered call category averages roughly a 6.75% annual distribution yield, below FYEE's trailing figure, according to the webcast.

Granat said the fund trades Section 1256 cash-settled S&P 500 index options, which are generally subject to 60% long-term and 40% short-term capital gains treatment regardless of holding period. The portfolio generally executes options trades weekly, sometimes multiple times per week, tied to market conditions, exposure and trade execution.

Since inception, Granat said, FYEE has maintained an equity beta of roughly 0.79 and captured approximately 80% to 85% of the S&P 500's cumulative return, alongside roughly 15% lower annualized volatility.

Granat said covered call strategies should not be viewed as a substitute for downside protection: the options overlay can reduce volatility, but it does not eliminate losses in a market decline.