Generating Steady Income: A Look at the First Trust BuyWrite Income ETF

First Trust BuyWrite Income ETF US33738R3084

For investors seeking reliable cash flow, strategies that extend beyond traditional dividend stocks are gaining attention. One such approach is embodied by the First Trust BuyWrite Income ETF (FTHI), which aims to deliver consistent returns through a blended strategy of equity holdings and options writing. This fund has garnered significant assets, but how does its methodology function in today's market to support its notable yield?

Key Fund Details:
* Investment Strategy: Holds a portfolio of U.S. equities while simultaneously selling call options on the S&P 500 Index.
* Distribution Schedule: Provides unitholders with income through monthly payments.
* Fund Size: Manages approximately $1.97 billion in assets.

The actively managed ETF invests in U.S.-listed stocks across various market capitalizations. In tandem with this equity exposure, the fund sells covered call options on the S&P 500. Typically, these options have durations of less than one year and are written at or near the current market level. The premiums collected from these sales are a primary source of the fund's distributable income.

This model is designed to mitigate portfolio volatility. The option premiums can offer a cushion during moderate market declines. However, the strategy also caps potential upside during strong rallies, as the sold calls limit participation in gains beyond their strike price. Notably, the portfolio maintains a low turnover rate of just 7%, which stands well below the 67% average observed among comparable derivatives-focused funds.

Yield Metrics and Fund Expenses

Income-focused investors will prioritize the fund's distribution profile. As of February 3, 2026, the ETF shows an annualized dividend of $2.124, translating to a current yield of 8.9%. The most recent monthly distribution of $0.1770 per share was paid to investors at the end of January.

The fund's total expense ratio is 0.76%. While this is higher than the fees for plain index funds, it sits about 8% below the average for its specific category of derivative-based income strategies. The underlying portfolio is broadly diversified across 188 holdings, with the Information Technology and Financials sectors carrying the largest weightings.

Drivers of Future Performance

The future income generation of FTHI is largely dependent on market volatility. Generally, higher equity market fluctuations lead to increased option premiums, which can bolster the ETF's cash flow. Conversely, a sustained environment of lower volatility or significant shifts in interest rates could affect the strategy's appeal relative to fixed-income alternatives.

Investors should also monitor the trajectory of the S&P 500 Index. Since the options strategy is tied to this benchmark, its price movements determine how frequently the written calls are exercised and to what extent the fund can participate in the gains of its stock holdings. Upcoming monthly distribution announcements will provide evidence on whether the current high-yield level can be sustained.