Why BuyWrite ETFs Are Letting Investors Down

The S&P 500 has delivered a historic run over the past six years, with a 5-year annualized return of 14.32% as of 2024—far outpacing its long-term average. But two popular ETFs designed to profit from the S&P 500—PBP (Invesco S&P 500 BuyWrite) and XYLD (Global X S&P 500 Covered Call)—are leaving investors in the dust. Let’s unpack why these “buy-write” ETFs are failing to deliver, and what it means for your portfolio.

The Buy-Write Trap: When Strategy Becomes a Straitjacket

Both PBP and XYLD use a “buy-write” strategy, which involves buying the S&P 500 and simultaneously selling call options. The goal is to generate steady income (dividends plus option premiums) while capping downside risk. But here’s the problem: this strategy systematically limits upside gains during roaring bull markets.

Take the S&P 500’s record-breaking years of 2021 (+26.89%) and 2023 (+24.23%). The ETFs couldn’t keep pace because their call options expired worthless, leaving them without the full upside. In 2023 alone, the S&P 500 surged 24%, while PBP gained just 9.29% over the following year (2024–2025).

The Numbers Don’t Lie: Underperformance Across the Board

• 10-Year Returns (2020–2025):
• PBP: 5.59%
• XYLD: 6.45%
• S&P 500: ~11.6% (estimated annualized)
• Dividend Yields (2024):
• XYLD leads with 12.99%, but PBP’s 11.68% still trails the S&P’s total return (which includes dividends).

The gap isn’t just about missing out on gains. Both ETFs also suffer from higher volatility than their reputation suggests. Their rolling one-month volatility (~10.3% for PBP vs ~10.2% for XYLD) is nearly identical to the S&P 500’s, erasing any supposed “stability” benefit.

The Downside? Even Worse Than You Think

While proponents argue these ETFs protect against crashes, the data reveals a darker truth:
- PBP’s Maximum Drawdown (2020–2025): -43.43% (vs the S&P 500’s -33.79%)
- XYLD’s Maximum Drawdown: -33.46%

This is not a typo. PBP’s worst-case scenario was worse than the S&P 500’s. Meanwhile, their correlation of 0.76 means holding both offers little diversification. If the market tanks, they’ll sink together.

The Expense Ratio Myth

Proponents often cite PBP’s lower expense ratio (0.49% vs XYLD’s 0.60%) as a selling point. But over a decade, that 0.11% difference only shaves about 1.1% off PBP’s total return. A rounding error compared to the ~6% annualized gap between PBP and the S&P 500.

The Bottom Line: These ETFs Are for Defensive Investors—Or Naive Ones

If you’re a retiree chasing income and can stomach volatility, XYLD’s 12.99% dividend yield might appeal. But for growth-focused investors, these ETFs are a dead end. They underperform in rallies, lag in risk-adjusted terms (PBP’s Sharpe Ratio of 0.65 vs the S&P’s 0.72), and offer no real downside shield.

Final Verdict: Skip the Buy-Write Hype

The S&P 500’s 14.32% 5-year return proves that riding the index itself beats the convoluted strategies of PBP and XYLD. Unless you’re willing to trade away gains in good years for modest income in bad ones, these ETFs aren’t worth your time.

Investors chasing yield should look elsewhere—like high-quality dividend stocks with lower volatility (e.g., consumer staples or utilities) or short-term bonds. And if you must own a covered-call ETF, XYLD’s higher yield edges it out—but only if you’re prepared for the roller coaster.

In Cramer’s words: “These ETFs are like paying for an umbrella that leaks. You’re better off staying dry in the rain with the real thing—the S&P 500 itself.”

Final Call: Avoid PBP and XYLD unless you’re purely income-focused. The S&P 500 still reigns supreme.