Income ETFs in 2026: The Capture Ratio That Separates Real Yield From NAV Erosion

Educational content, not financial advice. This article analyses a third-party screen of income ETFs; the figures are one analyst's numbers on one date, not our own verified performance data, and every one of them will have moved by the time you read this. All investing carries risk, including loss of capital. Consult a qualified professional before acting.

There is a specific failure mode in income investing: you buy a fund advertising a 20% yield, you collect the cheques for two years, and you eventually notice the account balance has gone nowhere. The income was real. The capital paying for it was being quietly liquidated underneath.

The usual test for this — "is the price down over the last year?" — is too crude. It fails healthy funds whose underlying asset simply fell, and it passes broken funds that had one lucky year. This article works through a better test, capture ratio, and applies it to the eleven covered-call ETFs that cleared a September 2026 screen, plus the satellite funds that failed it.

Where this data comes from. The fund-level figures are transcribed from the on-screen data table in a September 2026 video analysis by income investor Stephanie (Permission to Be Wealthy), who screens roughly 210 US covered-call income ETFs. The analysis, commentary and criticism below are our own, as are the charts. Where her narration and her on-screen table disagreed, we used the table and flagged it. Verify any figure against the fund's own factsheet before you act on it.

Key takeaways

• Capture ratio — not price direction — is the erosion test. It asks how many cents of every dollar the underlying index made that the fund kept, counting both price and distributions.
• 80 cents or better is healthy; 60 to 80 is a watch; under 60 with the index up and the fund's price down is genuine erosion.
• IWMI was the cleanest result of the year — roughly 100% capture while paying 14.7%.
• A single good year proves nothing. QYLD captured 90% over one year and 55% over three. GOOY looked fine at 96% over one year while having lost 41% of its price over three.
• The highest payer in the group is the weakest keeper. IGLD's 22% distribution came with 72% capture, and it is the one fund on the list whose price actually fell.
• Distribution rate is a forward annualisation, not a promise. For several funds here it already sits below the 12-month trailing yield — income that is drifting down, not up.

Why "the price went down" is the wrong test

A covered-call ETF owns an asset — the S&P 500, the Nasdaq 100, gold — and sells call options against it, collecting premium that it pays out to you. The useful way to picture it is a rental property. You own the house, you collect rent monthly, and the rent is your distribution.

Now separate two very different events:

• Property values across the whole neighbourhood fall. Your house is worth less. That is not the rental strategy failing; that is the market. When the neighbourhood recovers, so does your house.
• The neighbourhood rises and your house still loses value. To keep the rent cheque that large, pieces of the building are being sold off. That damage does not reverse when the market recovers.

Only the second one is NAV erosion. Gold in 2026 makes the distinction concrete: gold fell roughly 24% from its peak, so every gold-linked fund's price fell with it. Judging those funds by price alone would condemn them for something the metal did.

The capture ratio, defined

Capture answers one question: for every dollar the underlying made, how many cents did the fund keep?

Capture = fund total return ÷ index total return, measured over the same window, with both figures including distributions.

Total return on both sides is the part people get wrong. Comparing a fund's price change to an index's total return will make every income fund look broken, because the income fund pays its return out in cash instead of compounding it into the price.

One structural caveat the bands do not state. A covered-call fund sells away part of its upside by design, so in a strongly rising market capture below 100% is not a defect — it is the product working as intended. Capture is most informative when you compare funds tracking the same index in the same window, which is exactly how the table below is arranged.

What a high yield actually pays

Before the fund detail, the reason any of this matters. On a $500,000 portfolio:

That spread is the entire appeal, and the entire danger. The 20% column is only meaningful if the $500,000 is still there in ten years, which is the question capture is built to answer.

Every fund on the list

All figures as of September 2026. "Dist. rate" annualises the most recent distribution; "12M trailing" is what the fund actually paid over the past year.

S&P 500 funds

TSPY (TappAlpha SPY Growth & Daily Income) is the income leader at a 13.9% distribution rate, with price up 4.5% and a 20.3% total return against the index's 22.2% — 91% capture. It sells zero-days-to-expiration options against the whole portfolio every morning, capping each day's upside and resetting the next. That is an aggressive structure, and it is currently being paid for.

GPIX (Goldman Sachs S&P 500 Premium Income) posted the best total return in the category at 21.2% and the best capture at 95% — but its 8.5% distribution rate falls below the 10% income bar this screen uses. It is the better total return fund and the worse income fund, which is a legitimate choice rather than a flaw.

SPYI (NEOS S&P 500 High Income) clears every criterion: 12.1% distribution, 86% capture. The honest footnote is the three-year figure — 73% capture over that longer window. That is the long-run cost of a consistent 12% payout, and it is a trade worth making knowingly rather than discovering later.

Nasdaq 100 funds

QQQI (NEOS Nasdaq-100 High Income) pays 14.3% with price up 4.2% and a 20.0% total return — against a Nasdaq that returned 27.5%. Capture of 73% puts it in the watch band. This is not erosion: the price is up and the income is steady. It is the total-return bill for a 14% payout during a huge growth year. If you hold QQQI, hold it because income is your first objective and you can say so plainly.

GPIQ (Goldman Sachs Nasdaq-100 Premium Income) is the most balanced fund in the category — 10.6% distribution, price up 13.2%, and 94% capture. If you want Nasdaq exposure to show up in your balance and not only in your income, this is the shape of fund that does it.

JEPQ (JPMorgan Nasdaq Equity Premium Income) passed on every criterion with 80% capture. The caveat attached to it is tax, not performance: its option income is generally less tax-efficient than the NEOS and Goldman structures, which argues for holding it inside a Roth IRA or other tax-advantaged account rather than a taxable brokerage.

QYLD (Global X NASDAQ 100 Covered Call) is the teaching case. On one year it looks strong — 90% capture. Over three years it captured 55 cents on the dollar. One good year does not repair a base that has been shrinking for three.

Russell 2000

IWMI (NEOS Russell 2000 High Income) is the standout: a 14.7% distribution rate, price up 9.6%, total return 26.5% against the Russell's 26.4% — roughly 100% capture while paying nearly 15% in cash. The mechanism matters. NEOS writes out-of-the-money calls, which leaves room to participate when the underlying rallies, and small caps rallied. Run the same strategy in a flat or falling year and the result will look very different.

Energy

XLEI (State Street Energy Select Sector SPDR Premium Income) pays 15.8%, price up 13.6%, total return 38.8% against a 47.8% year for energy — 81% capture, just inside the healthy band. Its 0.35% expense ratio is roughly half what many covered-call funds charge. Two real caveats: it is barely a year old with around $73 million in assets, so it has never seen a bad energy cycle, and it is a sector bet rather than a diversified holding.

WEEI (Westwood Salient Enhanced Energy Income) is the seasoned alternative with over two years of history, a 10.7% distribution and price up 18.2% — but 69% capture, in the watch band.

Gold

IGLD (FT Vest Gold Strategy Target Income) is where the lens earns its keep. Its price is down 4.1% over twelve months, which under a naive "price down equals erosion" rule would have removed it from any list. But gold as measured by GLD still returned 24.5% over the full year, and IGLD returned 17.7% including its 22% distribution — 72% capture, and 67% over three years. So two things are true at once: the price is down because gold is down from its peak, not because the structure is broken; and a 22% payout is a genuine drag whenever gold is running. Watch band, for a reason that was flagged in advance rather than discovered afterwards.

IAUI (NEOS Gold High Income) is the lower-payout version: 12% distribution, price slightly positive at 2.5%, 65% capture. Less drag on price, less income — and still trailing gold.

The three-year view changes two verdicts

Only three of the eleven funds have a three-year history in this dataset, and for two of them the longer window is materially less flattering.

QYLD is the clearest warning in the whole dataset. Judged on the last twelve months it belongs in the healthy band. Judged over three years it kept barely half of what the Nasdaq delivered.

A $500,000 five-fund blend

Splitting $500,000 equally across the five category picks, using each fund's distribution rate and its actual one-year price change:

That is roughly $6,729 a month in income with the principal ending the year about $27,770 higher — no reinvestment required to hold the capital base, because none of the five is structurally eroding.

Read that as one year's outcome, not a forecast. It rests on a year in which the S&P returned 22%, the Nasdaq 27%, small caps 26% and energy 48%. In a flat or falling year the income line would look broadly similar and the price column would not. That asymmetry is the point of the whole exercise: the distributions are relatively stable, the capital is not.

Report card: how the March picks held up

The same analyst published picks in March 2026. Grading them six months later is the part most content skips, so it is worth reproducing.

Two observations carry more weight than the individual grades.

The two funds that eroded were both in the high-octane satellite bucket, never the core. GDXY is the textbook case: gold miners rose 57% while the fund's price fell 29%, because a payout above 100% has to come from somewhere. That is the roof being sold.

GOOY is the sneaky one. On a one-year view it captured 96% and looked healthy. It took the three-year window to reveal a price down 41% while Alphabet more than doubled. If you only ever look at twelve months, this is the failure you will not see coming.

And in fairness to the same bucket, SOXY was the single best performer of the group — up 68% in price while paying 12%. Concentration cuts both ways, which is exactly why these belong in a satellite sleeve sized so that being wrong is survivable.

Bitcoin: tracking correctly and still painful

BTCI (NEOS Bitcoin High Income ETF) is down about 45% in price while Bitcoin itself is down roughly 30%. Under the capture lens this reads as "underlying down", not erosion — the fund tracked its asset and delivered on total return. But the honest framing is that your capital is impaired until Bitcoin recovers, and no crypto income fund cleared the screen this year. A correct verdict and a bad outcome are not mutually exclusive.

What capture ratio does not tell you

The framework is a genuine improvement on "is the price down". It is not complete, and four gaps matter enough to state plainly.

1. Distribution rate is an annualisation, not a promise. It takes the most recent payout and multiplies it out. If that payout was unusually large, the headline rate overstates what you will actually receive. Compare it against the 12-month trailing figure: for XLEI the trailing yield (18.4%) sits well above the current rate (15.8%), and the same pattern appears at IGLD (23.1% vs 22.0%) and IAUI (13.1% vs 12.0%). In each case income has been drifting down, which the headline number hides.
2. Tax treatment is not in the number at all. Return of capital, Section 1256 treatment and ordinary-income distributions have materially different after-tax outcomes, and two funds with identical capture can leave you with different amounts of money. This is why JEPQ's placement in a Roth rather than a taxable account is a real decision. It also matters for how you read the payout itself: a distribution that is partly return of capital — the SEC's definition is worth reading — is partly your own money coming back, which is not the same thing as investment income even though it lands in your account identically.
3. Fund age and size are risk, not trivia. XLEI has roughly $73 million in assets and about a year of history. Any fund that has never traded through a bad cycle in its own asset class is an untested strategy, however good the trailing numbers look.
4. One year is a sample size of one. Four of the eleven funds here have no three-year record, and for the ones that do, the longer window was worse in every case. Treat a single-year capture figure as provisional.

How to run this analysis yourself

You do not need a spreadsheet of 210 funds to apply the test to something you already own.

1. Find the fund's total return over the last 12 months — not price change. Fund factsheets and most screeners publish it directly; it already includes distributions.
2. Find the total return of the thing it owns over exactly the same period. Use the index proxy the fund itself names: VOO or SPY for S&P funds, QQQ for Nasdaq, IWM for the Russell 2000, XLE for energy, GLD for gold.
3. Divide. Fund total return ÷ index total return = capture. Score it against the 80 / 60 bands.
4. Repeat over three years if the fund is old enough. If the three-year number is far below the one-year number, you have found a fund whose base is shrinking during good years.
5. Check the direction of the income by comparing the current distribution rate with the 12-month trailing yield. Trailing above current means the payout is falling.
6. Only then look at the yield. Reversing this order is how people end up owning GDXY.

The bar to clear, stated as one sentence: does the fund keep up with what it owns, and does it recover when the market recovers?

If any of the underlying mechanics are unfamiliar, the SEC's investor education site covers how ETFs are structured and what their distributions represent, and you can check any fund or promoter on investor.gov before you buy.

FAQ

What is a good capture ratio for a covered-call ETF?

80% or better over one year is healthy — the fund kept at least 80 cents of every dollar the underlying index produced, while paying you cash along the way. Between 60% and 80% is a watch, usually the price of a very high payout in a strong year. Below 60%, with the index up and the fund's price down, indicates the distribution is being funded from capital.

Is a falling share price always NAV erosion?

No, and this is the most common mistake. If the underlying asset fell, the fund falls with it and recovers with it. Erosion is specifically when the underlying rises and the fund's price still declines — damage that does not reverse. IGLD's 4.1% price decline during a year gold returned 24.5% is the ambiguous middle case worth understanding.

Which income ETF performed best in this screen?

IWMI on capture — roughly 100% of the Russell 2000's return while paying a 14.7% distribution rate. GPIX had the highest S&P capture at 95% but only an 8.5% distribution, and GPIQ was the best-balanced Nasdaq fund at 94% capture with a 10.6% payout.

Why did QYLD fail on a three-year view but pass on one year?

QYLD captured 90% of the Nasdaq's return over twelve months and 55% over three years, returning 51.2% against the index's 93.4%. A strong recent year can flatter a fund whose base has been shrinking for longer. Whenever a three-year history exists, check it.

Is the distribution rate the same as the yield I will receive?

No. Distribution rate annualises the most recent payment, so it is forward-looking and assumes the latest distribution repeats. The 12-month trailing yield is what the fund actually paid. When trailing sits above the current rate — as it does for XLEI, IGLD and IAUI here — the income has been declining.

Can a covered-call ETF ever capture more than 100%?

Occasionally, in flat or falling markets where the option premium exceeds what the index delivered. In strongly rising markets it is structurally unlikely, because selling calls caps upside by design. That is why capture is most useful for comparing funds on the same index over the same window rather than as an absolute score.

Should these funds be the core of a portfolio?

The diversified index-based ones — S&P, Nasdaq, Russell 2000 — are plausible core holdings for an income-first investor. Sector funds such as XLEI sit between core and satellite. Single-stock and single-theme option-income funds such as GOOY and GDXY belong in a small satellite sleeve if at all, sized so that being wrong does not change your plan.

Related reading: 10 passive income ideas that actually work in 2027, the seven yield-trap warning signs, the 4% rule, and the best way to invest $1,000.

Sources and as-of dates. Fund-level figures — price, distribution rate, 12-month trailing yield, 1- and 3-year price change and total return, index total return and capture — are transcribed from the on-screen data table of a September 2026 income-ETF analysis by Stephanie (Permission to Be Wealthy), covering a screen of roughly 210 US covered-call income ETFs. Index proxies are the ones named in that table: VOO, QQQ, IWM, XLE and GLD. Where narration and on-screen figures differed, the table was used (TSPY capture 91% not 92%; gold miners +57% not +51%; gold −24% from peak not −26%). The capture-ratio framework is hers; the charts, the distribution-rate-versus-trailing-yield analysis and the four stated limitations are ours. Nothing here has been independently verified against fund factsheets — confirm current figures with each issuer before investing. Fund data moves daily and these numbers are already historical.