It only seems fitting the ETF industry would encore its 30-year anniversary of existence by reaching new milestones. With 484 new ETF launches raising in $39 billion in new assets as of mid-December, ETFs have achieved widespread adoption.

"We've already broken the record for number of ETFs launched in a single year," said Douglas Yones, Head of Exchange Traded Products at NYSE.

“Alt income,” or alternative income ETFs, which include funds that get income from synthetic sources like derivatives, have been among 2023’s most popular ETF categories.

Let’s examine a few ETFs in this arena.

JPMorgan Equity Premium Income ETF (JEPI)
When JEPI launched in 2020, covered call ETFs had around $3 billion in assets. This year alone, investors have poured almost $26 billion into covered call ETFs.

Covered calls are designed to generate cash flow by selling derivatives on the underlying holdings. While the investment strategy limits upside potential gains, it provides cash flow.

Among its peers, JEPI has been a consistent asset growth leader. Roughly half of 2023’s inflows into all covered call ETFs have been taken by JEPI. Moreover, JEPI’s assets have swelled to $30.65 billion, making it the largest covered call ETF in the category.

USCF Gold Strategy Plus Income Fund (GLDX)
Some investors may like gold, but they might not like gold’s lack of yield income. And that’s where the USCF Gold Strategy Plus Income Fund (GLDX) may help.

While GLDX owns assets linked to gold, it aims for yield by employing a covered call strategy. The fund also collects additional income from collateral interest income on its gold holdings.

With its novel income approach, GLDX may solve one of the biggest conundrums facing gold investors; turning their shiny yellow metal into an income generating asset. Owning physical gold in a vault doesn’t provide that sort of advantage.

GLDX’s trailing 12-month yield was 5.40% as of November 30. While it might not seem like a high yield, it’s respectable compared to the zero percent yield provided by most precious metals ETFs.

Janus Henderson Securitized Income ETF (JSI)
Asset-backed securities (ABS) are another alt income source that offers attractive yields.

ETFs linked to the Bloomberg U.S. Aggregate Bond Index, like the iShares Core U.S. Aggregate Bond ETF (AGG), have minimal exposure to the higher yielding ABS market. This is largely due to the bias of the U.S. Aggregate Bond Index to corporate and government bonds.

Current yields for asset back securities are in the 7.5% to 8% range. Moreover, they represent a tiny slice—around 10%—of the massive $52 trillion fixed income market.

"Most investors are underweighted to this very large and attractive asset class, said John Kerschner, CFA and Head of U.S. Securitized Products at Janus Henderson Investors in a recent appearance on First Look ETF.

According to Kerschner, low market correlation to corporate debt and equities also provides diversification benefits.

The recently launched Janus Henderson Securitized Income ETF (JSI) offers exposure to collateralized loan obligations (CLOs), mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS). Advisors looking for portfolio income enhancements should take note.

While income from traditional sources like stocks and bonds are here to stay, alternative income ETFs can enhance the overall income level and diversification of a portfolio. Furthermore, this year’s asset boom in these types of ETFs has solidified their place as bonafide choices for income investors.

As advisors help familiarize their clients with these opportunities, the ETF market for income focused funds looks poised for more asset growth ahead.