GPIQ ETF Review – Goldman Sachs Nasdaq-100 Premium Income ETF

GPIQ is an income ETF from Goldman Sachs that utilizes dynamic covered call options on the Nasdaq 100 to pay large monthly distributions. I review it here.

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In a hurry? Here are the highlights:

1. GPIQ sells call options on the Nasdaq 100 and pays out the proceeds monthly.
2. GPIQ launched in late 2023 and has around $5 billion in assets.
3. GPIQ has an expense ratio of 0.29%.
4. The Nasdaq 100 is poorly diversified.
5. GPIQ has a relatively high distribution yield near 11% that is paid monthly, making it attractive to income investors.
6. GPIQ's yield can vary.
7. That yield is basically an “illusion” and is usually your own capital being returned to you.
8. GPIQ's headline feature is a “dynamic” call feature that covers anywhere from 25% to 75% of the equity book. In practice, it has been running near the bottom of that range at about 30%. Basically, Goldman is claiming to be able to time the market and capture upside in bull markets while being safer and falling less during bear markets.
9. This lower amount of call writing activity compared to competitors like JEPQ and QQQI means GPIQ captures more upside of the Nasdaq 100. This is why GPIQ has outperformed JEPQ and QQQI.
10. As we would expect, GPIQ has lagged both its underlying index and a well-diversified multi-asset portfolio on virtually all metrics and outcomes, including the generation of “income.”
11. Contrary to what nearly every article about this fund says, GPIQ's written calls appear in its financial statements as over-the-counter options on QQQ shares facing a single bank counterparty (Morgan Stanley), not exchange-listed index options and not FLEX options.
12. GPIQ does not get the Section 1256 60/40 tax treatment that QQQI gets.
13. Most of GPIQ's distributions – about 97% – have been return of capital (ROC).
14. Covered calls hurt expected return, hinder recovery from drawdowns, and skew the return distribution. Those problems compound as holding periods lengthen. Plainly, covered calls are not good for long term investors, even those wanting “income.” These characteristics are also worsened by trying to ratchet up the yield of the fund, and are not offset by the fund's “income.”
15. The theoretical shortcomings we've known for decades show up empirically in live fund data (and even before necessarily greater taxes, trading costs, and fees).
16. Covered calls shine exclusively during periods of truly sideways or mildly declining markets, which are inherently rare.
17. Covered call products thrive among retail investors due to cognitive errors such as loss aversion and mental accounting bias and the naivete of unsophisticated, income-oriented investors who are least likely to know how to properly evaluate what they're buying.
18. Distribution yield is not a safe withdrawal rate, and covered call funds do not let you retire earlier.
19. Generally speaking, covered call fund yields are, at best, you guessed it, irrelevant.
20. Share count doesn't matter. Selling shares is not a sin.
21. Woefully uninformed finfluencers push these high-yield, high-fee products on social media.
22. Investors do not not need a product with “Income” in the name to generate income. Ironically, using one typically results in inferior outcomes by virtually any measure.

GPIQ ETF Quick Stats

Here's GPIQ at a glance before we get into the weeds.

Introduction – What Is GPIQ and How Does It Work?

GPIQ is the Goldman Sachs Nasdaq-100 Premium Income ETF. Bit of a mouthful. The name originally was the Goldman Sachs Nasdaq-100 Premium Core Income ETF but Goldman later dropped the “Core.”

GPIQ launched in late 2023 and has since accumulated about $5 billion in AUM. GPIQ launched at the same time as its brother GPIX which uses the S&P 500.

If you've read my reviews of JEPQ and QQQI, this post will feel very familiar, and you probably already know the rough shape of the analysis to come, as all these funds have basically the same strategy at their core – writing covered call options on the Nasdaq 100 Index to deliver high monthly distributions. There are some subtle implementation differences that I'll explain in detail below, but broadly speaking, they are pretty similar in approach and outcomes.

In a nutshell, GPIQ straightforwardly holds the stocks in the Nasdaq 100 Index and “dynamically” writes covered calls on some of them, which they pay out monthly as “income.” Right now that yield annualized is right around 11%, so nearly 1% per month. Goldman words the fund's objective specifically as seeking “current income while maintaining prospects for capital appreciation,” and reasons to consider investment as:

• Seeks Consistent Monthly Distributions – Aims to generate a consistent monthly distribution rate generally from options premium and equity dividends.
• Equity Exposure with Lower Volatility – Provides equity exposure to the Nasdaq-100 Index and dynamically sells call options, allowing for participation with rising markets and potential outperformance in negative to flat markets.
• Diversifying Source of Income – Seeks to deliver attractive income with a lower correlation to traditional income sources and their risks.

We'll investigate each of these claims in detail later below.

In case you're new to it, the Nasdaq 100 is the 100 largest non-Financials stocks that trade on the Nasdaq exchange. Think Nvidia, Apple, Microsoft, Amazon, etc. Generally speaking, the Nasdaq 100 aka the “NDX” is basically a U.S. tech index at this point, which has paid off handsomely in recent years, making funds based on it more attractive to performance chasers and those seeking a more aggressive, higher-beta portfolio than something broader like the S&P 500.

GPIQ has a gross expense ratio of 0.35% with a fee waiver of 0.06% in place through at least April 30, 2027 for a net expense ratio of 0.29%.

Next we'll briefly cover the covered call trade and how GPIQ implements it.

Covered Calls and GPIQ

Now let's briefly cover – pun intended – the covered call trade itself. Covered call writers own the underlying and sell a call option on it, for which they collect a cash premium immediately. The buyer of that call option has the right – but not the obligation – to buy the underlying at the strike price at or before the contract's expiration date.

If the asset stays below the strike price of the option contract, you keep the cash and the asset. If it goes up past the strike, you keep the cash and you hand over the gains above the strike.

GPIQ owns a representative sample of the Nasdaq 100 and then sells call options on some of that basket. The “some” is a significant factor here. Their stated range for doing so is 25-75%. Other reviewers seem to often cite the midpoint of that range, 50%, but if you actually look at Goldman's documentation, the figure has been about 30% so far in the fund's lifetime.

This implementation is different from other funds in this space that write calls on the whole book, most of it, or even half of it. To my knowledge, GPIQ is doing the least amount of call writing out of the swath of NDX covered call funds. Older funds like QYLD, for example, simply write calls on the whole book, i.e. “full coverage,” and using at-the-money strikes. I've called this “blunt” in previous posts on these products.

Right off the bat here, knowing GPIQ has outperformed its peers while doing the least amount of call writing, your spidey sense should already be tingling…

On the options themselves, GPIQ appears to be writing OTC calls on QQQ shares themselves, not index options and not FLEX options as some have claimed. The counterparty is Morgan Stanley. We throw around terms like “counterparty risk” and “credit risk,” but here it's pretty real, as the counterparty is a single bank. These options are not exchange-listed options that are cleared by the Options Clearing Corporation. This also has tax implications, which we'll touch on later.

Interestingly, Goldman don't seem to have a moneyness target for GPIQ's strikes. One would think they'd specify this if their primary claim is upside capture. QYLD and JEPQ are explicitly at-the-money (ATM) and out-of-the-money (OTM) respectively, for example. ATM means the strike equals the market price of the underlying. OTM means the strike is higher than the underlying. In-the-money (ITM) means the strike is lower than the underlying.

Looking at GPIQ's actual trades, it seems to be rolling weekly writes that are slightly out-of-the-money. This would be consistent with the fund's stated goal of maintaining upside. Again, the fund literature doesn't mention a delta target or moneyness goal, so this is perhaps part of that “dynamic” approach Goldman is pitching.

Moreover, Goldman have hinted at lower call option coverage during heightened volatility. This is probably, again, to maintain upside. But this is the opposite of what the option writer hoping to harvest premium would want; premiums are higher when volatility is higher. It's also, of course, market timing.

Let's pause for a moment and appreciate some hilarious irony here. I'm genuinely not trying to sound holier-than-thou, but as you can now hopefully see, finfluencers push this fund for income and cite its purported better management and outperformance when it's really just a result of less option writing by design. They're promoting options and income while talking about the fund that does comparatively less of those than its peers.

Speaking of peers, next we'll more specifically break down the differences of GPIQ versus its closest competitors JEPQ and QQQI.

GPIQ vs. JEPQ

GPIQ and JEPQ share the same basic strategy of writing calls on the NDX to generate monthly income for investors. How they get there is a little different though. JEPQ is from J.P. Morgan and launched in 2022, a little over a year earlier than GPIQ. That's why JEPQ has $40B+ in assets while GPIQ has about 1/10 of that.

First, JEPQ actually has that similar layer of credit risk, but not via the same mechanism as GPIQ. JEPQ uses equity-linked notes (ELN's) for its covered call feature, meaning it's not directly writing options. GPIQ is directly writing options, albeit over the counter on an ETF, in this case QQQ. The takeaway is both of these have real counterparty risk.

JEPQ is a bit more active in its selection of a subset of the NDX and has lower beta around 0.7 on purpose, while GPIQ is more holistic in its NDX replication with a beta of 1.03. As such, JEPQ naturally has much higher turnover than GPIQ. On this dimension alone, think of JEPQ as being more tame. You can see this illustrated in JEPQ's lower volatility in the backtest below.

Still, GPIQ has outperformed over this brief period because the NDX has mostly been going up, and its partial coverage captures more upside than JEPQ's fuller coverage.

The most salient difference is probably the characterization and subsequent tax treatment of the distributions of these funds. JEPQ is mostly ordinary income due to those aforementioned ELN's, while GPIQ, so far, has delivered mostly return of capital (ROC). That ROC deferral is an advantage for GPIQ in taxable space. This is also why JEPQ's SEC Yield is 12% while GPIQ's is close to zero.

These two aren't too far apart on fees. GPIQ costs 0.29% net and JEPQ costs a little more at 0.35%.

GPIQ vs. QQQI

Now let's talk about the other major player often included in these conversations, QQQI.

QQQI is from NEOS. It launched in early 2024, about 3 months after GPIQ. QQQI has noticeably received more attention, presumably due to heavy marketing efforts by NEOS, including paying influencers, as well as its more complex strategy. QQQI boasts about $13B in assets, over double that of GPIQ.

A glaring difference between these two is the expense ratio. GPIQ costs 0.29% net. QQQI is over double that at 0.68%.

For that, you're mostly paying for an extra long call leg with QQQI that GPIQ does not implement, as well as superior tax treatment as 1256 contracts (60% long term capital gains, 40% short term capital gains) with QQQI due to it using NDX options, where GPIQ is using QQQ options. A corollary here is that QQQI doesn't have that counterparty risk that GPIQ carries with its use of OTC options.

QQQI also has nearly full coverage with its option overlay, whereas GPIQ is again at about 30%. This means QQQI has lagged its underlying by more. GPIQ aims to maintain upside by writing fewer options. QQQI does so by using that long call trade to try to claw back some upside after full coverage option writing. GPIQ's simpler solution has been winning.

Distributions from both funds have been almost entirely ROC at 96%+.

The entire category is probably a poor idea, but QQQI's tax advantage may be preferable in taxable space assuming it's able to outweigh its much greater fee. In tax-advantaged space like an IRA, that 1256 treatment evaporates so GPIQ may be preferable. Consult your tax professional.

Next we'll look at GPIQ versus its underlying index fund QQQ.

GPIQ vs. QQQ

The next obvious comparison is to look at GPIQ versus plainly owning the Nasdaq-100 Index via something like QQQ or QQQM.

Since its inception in late 2023 through mid-2026, GPIQ lagged the NDX as we'd expect since the NDX has mostly been going up. While GPIQ aims to maintain most of the upside, by definition it can't get all of it.

The interesting thing is despite its greater volatility and risk, the underlying has still delivered a greater risk-adjusted return over this brief period versus GPIQ. In other words, you would have come out ahead – even for “income” – by just owning the underlying. It costing half of GPIQ is a bonus.

But we can definitely see GPIQ behaves much more similarly to the NDX than its peers. Look at how close those volatility and drawdown numbers are, basically as near as makes no difference. Consequently, it has also outperformed its peers. Consider following that to its logical conclusion…

Experienced investors will recognize the mechanical inescapability of covered calls forgoing the upside of the underlying index, which is how they deliver “income.” Most of the time, this results in worse outcomes, for virtually any goal. Uninformed buyers often seem to miss that fact.

Option premiums may be higher on the more volatile Nasdaq, but let's also not forget it's a pretty poorly diversified index in the first place and is arguably unsuitable as a core holding anyway. If one needs lower volatility and more steady income, I think it makes sense to just own less beta from the jump before pulling out the options book.

Is GPIQ a Good Investment?

So is GPIQ a good investment? Probably not.

As we've seen already, covered calls are plainly not an efficient or effective way to de-risk a portfolio or provide sustained “income.” Don't worry, I'll provide more detailed illustrations of that claim shortly.

Particularly in this case, GPIQ doesn't do much de-risking anyway. That's its stated purpose – to maintain that close index replication to capture more upside.

Appreciate that such inefficiency of covered calls is not an issue with this fund's – or any fund's – strategy or management. GPIQ does exactly what it claims it will do. It reduces volatility very slightly relative to the underlying, generates monthly income in the form of call option premiums, provides a small cushion in flat or mild downward markets, and attempts to maintain maximum upside by only writing calls on a small part of its QQQ book.

As an aside, hopefully it doesn't require explaining that we can't accurately and consistently predict such market behavior ahead of time, so the odds are already inherently stacked against the covered call investor and especially the market timer.

As I hinted at earlier, the issue is simply the inescapable mechanics of the covered call trade itself.

Fischer Black – who literally co-wrote the pricing model for such option contracts – directly addressed this loss of upside in a 1975 paper titled “Fact and Fantasy in the Use of Options,” noting that traders often myopically focus on premium income while ignoring the loss of upside appreciation when the option is exercised. He concluded that an investor who writes call options against existing stock holdings will often end up in a worse position than they started in.

GPIQ is doing what it can to maintain upside by engaging in basically the smallest amount of option writing, but it is still capped upside nonetheless. More efficient does not mean maximally efficient.

Limited upside but leaving nearly unlimited downside risk introduces an appreciably asymmetric returns distribution. This alone should make your spidey sense tingle and is a red flag for anyone versed on such trades. We'll go over this in detail shortly. I've broken up the specific shortcomings and notable features in subsections below.

GPIQ's primary selling point is capturing the most upside relative to its covered call peers. We already saw its risk metrics aren't too dissimilar from the NDX itself. So if you're brushing up against it as close as you can, I'd say why not just own the underlying and conveniently pay half the fee? Or better yet, if you actually want to mitigate volatility and risk to generate reliable income, use the underlying plus T-bills, which tends to be a demonstrably superior alternative in these cases.

Next we'll talk specifically about that capped upside and why this hurts long term.

Covered Calls Hinder Mean Reversion

Recall that markets need greater gains to recover from greater losses:

Imagine owning a covered call product in a scenario like the March 2020 flash crash, when the stock market dropped suddenly and steeply. You drop with the market but not quite as much thanks to your nifty option premium and lower beta, but then you don't get to fully participate in the massive – and necessary – recovery.

We can actually see precisely that scenario looking at XYLD, an older S&P 500 covered call product from Global X, versus VOO for the plain underlying S&P 500 Index:

This is an older, somewhat extreme example purely to illustrate the concept, but the mechanics are the same.

Basically, to word this in a different way that hopefully drives the point home, in explosive bull markets, which the Nasdaq-100 is historically prone to, GPIQ lags the NDX, and in flat or moderately declining markets, GPIQ fares only slightly better than the NDX. That is not a prediction, but simply a mathematical certainty necessitated by the call option trade itself.

We can see precisely that coming out of that March 2025 dip, for example – GPIQ fell ever so slightly less but then didn't have the octane it needed to climb out of the hole like the NDX. That asymmetry will compound over time with every dip.

In fairness, GPIQ is structurally less exposed to this than older, more blunt, full-option-coverage iterations of such products like QYLD and JEPQ. But like I said earlier, “less upside lost” is still a nonzero amount.

Again, appreciate the irony that GPIQ has been getting a ton of press and attracting assets due to outperforming its peers in this space, and that outperformance is solely the result of its being a covered call fund that is least like a covered fall fund in the sea of JEPQ, QQQI, QYLD, etc. Again, consider following that path to its logical endpoint…

While hilarious, this praise is simultaneously concerning because it invariably illustrates that buyers do not understand what they're buying.

Now let's discuss the specifics of GPIQ's yield, fees, and tax treatment.

GPIQ Yield, Fees, and Taxes

So the main attraction of GPIQ is obviously its stated distribution yield of about 10%. That's why people are buying it. That yield is paid out monthly as income. That means investors can use it for monthly expenses. That's its main purpose.

I use the word “distribution” because these are not dividends.

But I see many buyers and proponents of GPIQ – and funds like it – solely focus on that juicy yield and ignore the rest, not realizing they could likely achieve demonstrably superior outcomes – less risk, more stability, and more “income” – using simpler, cheaper products, namely low cost index funds. I'll model this for you later below.

Worse, people seem to think the income is guaranteed and they can just ignore whatever the share price does. This is a severe misunderstanding of both the product itself and of safe withdrawal rates (SWR). SWR refers to a withdrawal rate that does not exhaust the portfolio. Simply put, yield is not SWR. I've modeled this out many times as well. Even over very short periods since the launches of these various funds, a naive mix of the underlying and T-bills outlasts the covered call fund when withdrawing regular income.

I'm often a broken record on this point – I say all the time that total return and the risk you're taking to get it are all that matters at the end of the day, even for the so-called “income investor.” Many don't realize that is precisely what's determining your safe withdrawal rate (SWR). Sadly, covered call funds appeal to such cognitive errors in assessment.

And in considering all these inefficiencies we're touching on, I want to keep reminding people that a fund like GPIQ costs much more than an underlying index fund like QQQM, and in this case for something that doesn't even look very different. Just as I mentioned that loss of upside compounds, differences in fees compound over time too.

Naysayers will say I'm dumb for even comparing those in the first place. I recognize comparing them alone doesn't make much sense since they serve different purposes; I do so purely to provide the framework for the discussion, to keep us grounded in reality with respect to fees, and to establish baseline risk-adjusted return figures for comparison (see above) to illustrate the inherent inefficiencies I keep hinting at. The entire purpose of funds like this is to provide current income more efficiently than buying the underlying, and I want to emphasize that they typically still fail at that singular, simple goal.

But here I don't even think the comparison is a faux pas because, once again, one of GPIQ's primary features is keeping up with the NDX more than its peers; it's basically asking for that comparison.

For a young accumulator who is thinking about simply reinvesting the distributions, hopefully it doesn't require explaining that GPIQ makes no sense. If you don't need that monthly income to pay your bills, you're just getting taxed on hefty distributions and then reinvesting the after-tax amount, creating a not-so-insignificant drag, all while capping the upside of the investment. That investor would inarguably be better off in a plain-vanilla Nasdaq-100 fund. Again, I want to stress that this is not my opinion; it's a mathematical certainty that is made certain by the call writing trade itself.

Many seem to think they're getting something extra in that distribution. They think they're owning the index cake and getting some icing on top. As you've now seen, this is absolutely not true. You're not getting full market participation + option premium. You're getting partial participation + option premium. Very different, especially as the time period increases.

Now let's talk about GPIQ's tax treatment. The story revolves around return of capital, or ROC. It's what it sounds like – your invested capital is being returned to you.

ROC isn't taxed when you receive it. Instead, it reduces your cost basis in the shares you hold. When you eventually sell (or once your basis hits zero and further distributions become taxable capital gains), you pay tax on the deferred amount, generally at capital gains rates. Tax deferral is a real advantage, no doubt, but it's not a magic exemption as many seem to erroneously believe.

To state the obvious, these tax advantages evaporate completely if you're holding GPIQ inside an IRA, where the tax characterization of the distribution doesn't matter.

Next we'll cover another oft-misunderstood claim about covered call funds – “downside protection.”

GPIQ Does Not Provide Downside Protection

Some people like to claim that a covered call fund offers “downside protection,” meaning a smaller drawdown when the market drops. So for a hypothetical example, if the underlying index drops 20%, the covered call fund might only drop 15%.

That sounds nice until we realize that difference is precisely equal to the amount of the premium received from writing the call option. But is a comparatively small volatility reduction tangibly beneficial anyway in this context? Probably not. And like I hinted at earlier, you also just sold the upside you'll need to recover.

And in this case specifically, we already know GPIQ will offer the least cushion because it does the least amount of option writing, so it's basically going to fall with the broader market.

I'll walk you through how this shakes out empirically.

The investor who actually needs that regular income every month — say, a retiree who is spending down the portfolio and wants predictable monthly distributions — obviously has a more legitimate case for owning a fund like this, but even she can almost certainly do better. I'll model out withdrawals later, but for now let's just look at volatility, drawdown, and risk-adjusted return again.

Notice how diversifying across multiple assets (using low cost index funds, no less) tends to produce demonstrably superior outcomes across the board, and this is only looking at merely a few years since GPIQ launched!

You might be thinking this is anomalous given the short time period. It's not. Older covered call funds exhibit the same behavior comparatively. Their suboptimality actually widens typically as we increase the time window.

I'll expand on that risk characteristic in more detail, since it warrants explaining. Simply put, despite erroneous claims from dividend bros shilling products like this on social media, covered calls do not protect the downside. Period.

You can see this in GPIQ's volatility and drawdown metrics not being meaningfully different from the underlying QQQ.

If you want less beta, sell some beta (and hold cash). That's exactly what I've illustrated with the backtest here – just add some cash. Ironically, holding a dash of T-bills tends to provide more of a cushion than the call option premium of a covered call fund. The small option premium here does not prevent GPIQ from falling sharply when the Nasdaq-100 crashes. We just saw as much.

Now let's talk about why the marketing claims with products like this fall short…

Exploitation of Biases and Novices' Naivete

Fund marketing for products like GPIQ often implicitly relies on biases like loss aversion, the tendency of humans to be more sensitive to losses than to gains of an equal amount. Promoters do so by boasting about Sharpe ratios and drawdown mitigation. They exploit mental accounting bias by highlighting that high “income,” getting investors to conveniently ignore share price behavior. As you now hopefully understand, none of these claims really hold water under minimal scrutiny, and that “income” is basically an illusion.

In fairness, GPIQ doesn't exactly do that first one because it's mainly boasting about tracking closely to the underlying by not doing as much option writing as its competitors.

Harris, Hartzmark, and Solomon noted in 2015 that fund providers will deliberately “juice” distribution yields specifically to attract unsophisticated, income-focused investors, and that funds doing so tend to deliver worse total returns and higher tax costs on average.

In a 2022 paper titled “Individual Differences in Susceptibility to Financial Bullshit,” Kienzler, Västfjäll, and Tinghög noted this uncomfortable implication for products like QQQI: the investors most drawn to high-yield, jargon-heavy financial marketing are precisely the ones least equipped to critically evaluate what they're buying, and end up with worse financial outcomes on average.

Ben Felix summarizes the whole product space beautifully: “covered call products are neither high-income nor high-Sharpe, and the idea that covered calls generate income is financial bullshit.”

Next we'll briefly touch on the skewness issue I hinted at in regards to why risk-adjusted return still looks unrealistically rosy for covered call products.

Skewness, Sharpe, and Shortcomings

Seasoned investors may also recognize that up to this point, we've also generously ignored the fact that Sharpe and Sortino don't even account for covered calls' negative impact on skewness and kurtosis, which are higher moments of the return distribution. (Though funnily enough, Sharpe and Sortino are often still lower for the covered call product, as you've seen.)

Basically, when options enter the picture, our beloved Normal distribution aka “bell curve,” on which many fundamental mean-variance optimization assumptions rely, goes out the window. So fundamentally, viewing covered calls through an MVO lens at all is already technically incorrect, or at least imprecise, and unfairly favors covered calls.

Such effects on skewness were noted as far back as 1981 by Bookstaber and Clarke in a paper titled “Options Can Alter Portfolio Return Distributions.” Brooks and Chance similarly noted in their 2019 paper “The ‘Superior Performance' of Covered Calls on the S&P 500: Rethinking an Anomaly” that previously anomalous alpha sometimes seen with covered call strategies vanishes entirely after controlling for negative skewness, citing that such alpha is merely an “illusion.”

This is why I previously noted that the risk-adjusted return metrics from earlier are realistically even lower than they already appear and don't tell the full story. Even so, GPIQ hasn't even been out long and its risk-adjusted metrics already lag its underlying. Sigh. You're probably thinking 2.5 years just isn't enough time and that GPIQ will eventually prove itself. In the next section I'll explain why longer time periods typically illustrate the worsening of the performance delta.

Longer Isn't Better

Over some extremely short period of sideways market movement, which is itself a rare occurrence, covered calls may warrant some small inclusion in the portfolio, because again that's the only time they shine. The issue is that over any reasonably long period, the aforementioned asymmetry of returns compounds. Increasingly more upside is capped, and increasingly more downside is left exposed. And we've already seen this in just a few years since GPIQ's launch!

Now in fairness, we haven't seen a sustained flat or mild bear market during that short period. But there's the rub. We're usually investing in the market at all because we expect it to go up more than it goes down. The covered call fund like GPIQ still relies on this assumption, but intrinsically mutes its effect to the detriment of the investor. Any advantage the covered call fund has during a flat or mild bear market is necessarily short-lived if we assume markets go up over the long term. And remember, GPIQ isn't even doing much of the trade that would shine in that flat market in the first place.

Extending the logic on the asymmetry property, hopefully it is intuitive at this point that the disparity is likely to get worse the longer the covered call fund is held. That is, the gap between the covered call fund and its underlying equities index is expected to widen as more time passes. Like I just noted, we've seen that already in just a few short years' time with GPIQ, but here's PBP, one of the oldest covered call ETFs, versus its underlying S&P 500 since 2007 to illustrate this point further:

Next I'll explicitly address the regular “income” withdrawals youv'e been waiting for.

Modeling Withdrawals

I know what you're thinking: We care about getting sustainable monthly income to cover expenses, not just which strategy had the highest return over the long term, dummy!

Recognize – and I'll show you this in a sec – that, in this context, those are actually basically the same goal. That's why I focused so heavily on volatility, drawdown, and subsequent risk-adjusted performance earlier. Like I hinted at above, those are measurements of things that determine the sustainability of the income-generating portfolio.

For the more advanced readers, that leap should be intuitive, but I'll admit I often gloss over it in discussions with income investors about these products and I forget that sometimes it needs to be explicitly spelled out, so I'll do that now.

Let's model it out using the same example above to illustrate. Here's that same time period for PBP, a covered call fund based on the S&P 500, and VFINX, an S&P 500 mutual fund, with a $1M starting balance and $5,000 withdrawn monthly as “income.” Just for comparison, I've also included the idea I mentioned earlier – simply holding the underlying and some cash, in this case a 60/40 allocation.

The result is what we'd expect given everything we've discussed so far – Both the underlying and 60/40 resulted in higher annualized return, lower volatility, lower risk, and consequently more money left at the end. That is, they allowed the investor to withdraw more income for longer. Specifically, 15-year safe withdrawal rates for the 3 portfolios were 6.67%, 8.16%, and 7.79% respectively:

Appreciate that it matters not whether the monthly withdrawals came from options, dividends, or share price appreciation. Once again, total return and risk are the only things that matter at the end of the day. Total return is what pays your bills.

A corollary to that, which also hopefully shouldn't require explaining but somehow often seems to when this kind of topic is raised, is that avoiding selling shares has no tangible benefit, and number of shares objectively doesn't matter. We only care about the value of those shares, as, once again, that's what pays the bills. 1 share worth $100 is effectively the same thing as 100 shares at $1 each.

Moreover, also pause and appreciate that PBP has a stated distribution yield of 11%, yet its historical total return was only 5% annualized. Simply put, yield is not return. That's why we often say the income from these funds is an “illusion.” This is not at all obvious to the novice investor, and marketers exploit that.

“But that's not GPIQ! Show GPIQ!”

You're right. I wanted to show a longer time period with an older, more blunt covered call fund. Here's GPIQ using our same comparisons from earlier but this time introducing regular withdrawals of $2,000/mo. as “income” on a $100k starting balance:

Same story. Hopefully you now realize that the risk-adjusted return measures basically tell the income story already, as I hinted at earlier.

So now when you see someone on social media claiming a covered call “income” fund will allow you to retire earlier and “keep all your shares,” or cavalierly comparing the distribution yield to a retirement withdrawal rate, you can call them out on the sheer nonsense of all of those ideas. Covered calls do not somehow magically dismiss the math behind sequence risk and safe withdrawal rates.

So what are we supposed to do for “income?” Let's talk about it…

Income Does Not Necessitate “Income”

Plainly, needing income does not mean you need a fund with “Income” in the name. It seems many don't realize this and are simply falling victim to marketing.

If you couldn't tell by now, I'm not a covered call fund investor and I'm not a dividend investor generally. I'd rather own a broadly diversified basket of low-cost index funds and simply sell shares as needed for income (and I happen to think most other people should, too). I'll explain my case for why I believe this. I also do exactly this, so I'm walking the walk.

I understand the psychological appeal of a regular cash deposit hitting your account every month, but mathematically, it's effectively the same and is usually inferior due to all the aforementioned reasons. I can set up the brokerage to sell shares for me automatically and create my own “dividend” when and how I want, and I do, and you can too.

Previously, there was admittedly a big logistical argument favoring dividends and distributions, especially back in the day when there were trading fees and commissions with brokerages, but nowadays I can, once again, have the brokerage automatically liquidate shares for me and transfer cash to my bank account without lifting a finger. The logistics are no longer different. The end result is exactly the same – cash hitting one's bank account to be spent.

In short, I don't let mental accounting or corporate dividend policy dictate my investing strategy or personal spending policy. You may feel differently. But I'm going to challenge you to step back and try to view things rationally, even if only to understand the nuances at play.

In an admitted attempt purely to appeal to the sensibility of the dividend bros on Reddit and Twitter, a generous compromise to scratch the itch here would be to maybe include GPIQ as a small percentage of the portfolio, but not the whole thing, basically making it an “income sleeve” of sorts (even though I hate that term). Portfolios don't have to be all-or-nothing. This would be adding an option writing overlay to an otherwise traditional portfolio. That is, for a hypothetical example, you could hold the NDX via QQQM, some T-bills, some gold, and a dash of GPIQ, and have a well-diversified setup (at least within the NDX selection universe).

I've seen some people do precisely that, but then again, please recognize that if you've got, for example, 90% QQQM and 10% GPIQ, you've got basically 99% NDX and 1% option overlay. Come on, man; just own the underlying at that point…

To reiterate, I'd emphatically encourage anyone to get away from this fanciful idea that you must own a high-yield product with “income” in the name if you need income, or even more generally, get away from the idea that you must get your “income” from dividends or distributions.

This irrational mental accounting bias would be comical at this point if it weren't so concerningly pervasive, particularly among novices. I know I'm beating a dead horse, but it is tremendously troubling to me that these [usually] terrible products are vehemently pushed on unsuspecting novices in arenas like YouTube and Twitter, using the allure of so-called “passive income,” often by equally uninformed grifters who are creating the content and simply highlighting juicy yields to make bogus claims without understanding any part of what they're even talking about, much less the nuances discussed above.

Also, stop jumping to the next shiny covered call object that launches. First it was QYLD. Then it was JEPQ. Now it's ostensibly QQQI and GPIQ. Despite severely uninformed finfluencers – who are often paid to push these products – claiming otherwise, accept that NEOS, YieldMax, JPMorgan, and Goldman can't change option math.

Influencers will try to sell you on this idea that you're getting full underlying index exposure plus a free, extra option writing income on top. As you've now seen, this is patently false. I often can't tell if promoters of these products are being misleading purposefully or accidentally, and I'm not sure which is worse.

In short, as you hopefully now understand, the implementation of any particular covered call fund is not the issue; it's the fundamental mechanics of writing call options per se. Goldman have chosen to engage in less option writing to squeeze out more upside here, but again, for about the 10th time, follow that idea to its logical conclusion…

GPIQ has basically tried to maximize efficiency and upside by minimizing the option writing, but it's still a covered call fund. And if it is a covered call fund in any form, by definition it is not the holy grail you think you've found that will suddenly be the one to beat its underlying over the long term and somehow magically remediate all the problems I discussed earlier. The hilarious irony I keep hinting at is that the only way to fix those is to remove the covered call feature entirely.

Recap and Conclusion

That was a lot. Let's recap:

1. GPIQ sells call options on the Nasdaq 100 and pays out the proceeds monthly.
2. GPIQ launched in late 2023 and has around $5 billion in assets.
3. GPIQ has an expense ratio of 0.29%.
4. The Nasdaq 100 is poorly diversified.
5. GPIQ has a relatively high distribution yield near 11% that is paid monthly, making it attractive to income investors.
6. GPIQ's yield can vary.
7. That yield is basically an “illusion” and is usually your own capital being returned to you.
8. GPIQ's headline feature is a “dynamic” call feature that covers anywhere from 25% to 75% of the equity book. In practice, it has been running near the bottom of that range at about 30%. Basically, Goldman is claiming to be able to time the market and capture upside in bull markets while being safer and falling less during bear markets.
9. This lower amount of call writing activity compared to competitors like JEPQ and QQQI means GPIQ captures more upside of the Nasdaq 100. This is why GPIQ has outperformed JEPQ and QQQI.
10. As we would expect, GPIQ has lagged both its underlying index and a well-diversified multi-asset portfolio on virtually all metrics and outcomes, including the generation of “income.”
11. Contrary to what nearly every article about this fund says, GPIQ's written calls appear in its financial statements as over-the-counter options on QQQ shares facing a single bank counterparty (Morgan Stanley), not exchange-listed index options and not FLEX options.
12. GPIQ does not get the Section 1256 60/40 tax treatment that QQQI gets.
13. Most of GPIQ's distributions – about 97% – have been return of capital (ROC).
14. Covered calls hurt expected return, hinder recovery from drawdowns, and skew the return distribution. Those problems compound as holding periods lengthen. Plainly, covered calls are not good for long term investors, even those wanting “income.” These characteristics are also worsened by trying to ratchet up the yield of the fund, and are not offset by the fund's “income.”
15. The theoretical shortcomings we've known for decades show up empirically in live fund data (and even before necessarily greater taxes, trading costs, and fees).
16. Covered calls shine exclusively during periods of truly sideways or mildly declining markets, which are inherently rare.
17. Covered call products thrive among retail investors due to cognitive errors such as loss aversion and mental accounting bias and the naivete of unsophisticated, income-oriented investors who are least likely to know how to properly evaluate what they're buying.
18. Distribution yield is not a safe withdrawal rate, and covered call funds do not let you retire earlier.
19. Generally speaking, covered call fund yields are, at best, you guessed it, irrelevant.
20. Share count doesn't matter. Selling shares is not a sin.
21. Woefully uninformed finfluencers push these high-yield, high-fee products on social media.
22. Investors do not not need a product with “Income” in the name to generate income. Ironically, using one typically results in inferior outcomes by virtually any measure.

If for some reason you still want GPIQ after all that, it should be available at any major broker, including M1 Finance, which is the one I tend to suggest around here.

What do you think of GPIQ? Do you own it? Let me know in the comments.

GPIQ FAQ's

Lastly, here are some frequently asked questions about GPIQ and their answers.

References

Black, F. (1975). Fact and fantasy in the use of options. Financial Analysts Journal, 31(4), 36–41. https://doi.org/10.2469/faj.v31.n4.36

Bookstaber, R., & Clarke, R. (1981). Options can alter portfolio return distributions. Journal of Portfolio Management, 7(3), 63–70. https://www.pm-research.com/content/iijpormgmt/7/3/63

Brooks, R., Chance, D. M., & Hemler, M. L. (2019). The “superior performance” of covered calls on the S&P 500: Rethinking an anomaly. The Journal of Derivatives, 27(2), 50–69. https://www.pm-research.com/content/iijderiv/27/2/50

Calluzzo, P., Moneta, F., & Topaloglu, S. (2021). Complex instruments have increased risk and reduced performance at mutual funds. Critical Finance Review, 14(1). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2938146

Goetzmann, W. N., Ingersoll, J. E., Spiegel, M. I., & Welch, I. (2007). Portfolio performance manipulation and manipulation-proof performance measures. The Review of Financial Studies, 20(5), 1503–1546. https://doi.org/10.1093/rfs/hhm025

Harris, L. E., Hartzmark, S. M., & Solomon, D. H. (2015). Juicing the dividend yield: Mutual funds and the demand for dividends. Journal of Financial Economics, 116(3), 433–451. https://doi.org/10.1016/j.jfineco.2015.04.001

Harvey, C. R., & Siddique, A. (2000). Conditional skewness in asset pricing tests. The Journal of Finance, 55(3), 1263–1295. https://doi.org/10.1111/0022-1082.00247

Israelov, R., & Nze Ndong, D. (2024). A devil's bargain: When generating income undermines investment returns. The Journal of Alternative Investments. https://doi.org/10.3905/jai.2024.1.211

Kienzler, M., Västfjäll, D., & Tinghög, G. (2022). Individual differences in susceptibility to financial bullshit. Journal of Behavioral and Experimental Finance, 34, 100655. https://doi.org/10.1016/j.jbef.2022.100655

Leland, H. E. (1999). Beyond mean–variance: Performance measurement in a nonsymmetrical world. Financial Analysts Journal, 55(1), 27–36. https://www.pm-research.com/content/iijpormgmt/25/5/109

Maillard, D. (2013). Manipulation-proof performance measure and the cost of tail risk. SSRN Working Paper. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2276050

Merton, R. C., Scholes, M. S., & Gladstein, M. L. (1978). The returns and risk of alternative call option portfolio investment strategies. The Journal of Business, 51(2), 183–242. https://www.jstor.org/stable/3665864

Whaley, R. E. (2002). Return and risk of CBOE buy write monthly index. The Journal of Derivatives, 10(2), 35–42. https://doi.org/10.3905/jod.2002.319194

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Disclaimer:  While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.