FTHI: A Steady Beacon in Turbulent Markets – Why This ETF Deserves a Spot in Your Income Portfolio

Investors seeking income in volatile markets often face a dilemma: prioritize steady dividends or chase growth? The First Trust BuyWrite Income ETF (FTHI) offers a compelling middle ground, combining the cash flow of covered call options with exposure to high-quality sectors. With its May 2025 dividend of $0.1630 per share and a 9.47% 12-month distribution rate, FTHI is positioned to thrive in uncertain environments. Let’s dissect its strategy, allocations, and yield to see why it’s a must-consider for income portfolios.

The Option Strategy: Balancing Income and Risk

FTHI’s core strength lies in its covered call strategy, which involves selling call options on the S&P 500 Index. Here’s how it works:
- Option Overwrite %: 71.5% of the portfolio’s value is tied to call options, generating premium income.
- Moneyness: Options are written 5.23% out-of-the-money, balancing income generation with downside protection.
- Expiration: A 23-day average lifespan ensures frequent premium collection, aligning with FTHI’s monthly dividend distribution.

This approach has reduced FTHI’s volatility compared to the broader market. Over the past three years, its beta of 0.74 and standard deviation of 12.56% (vs. the S&P 500’s 16.38%) confirm its defensive tilt. While FTHI underperformed the S&P 500 in 2025’s first quarter (-6.21% vs. -7.50%), it outperformed the CBOE S&P 500 BuyWrite Index, proving its edge in tactical execution.

Sector Allocations: Growth Meets Stability

FTHI’s sector weightings reflect a deliberate blend of high-growth tech and defensive sectors, creating a balanced income engine:
- Tech Dominance: 29.85% allocated to Information Technology, including top holdings like Microsoft (5.68%), NVIDIA (5.24%), and Apple (4.60%). These names fuel growth while providing dividend consistency.
- Defensive Anchors: Financials (14.92%) and Healthcare (10.80%) offer steady cash flows, while Consumer Staples (11.14%) and Utilities (2.59%) buffer against economic downturns.
- Broad Exposure: Smaller allocations to Consumer Discretionary (10.43%) and Communication Services (9.43%) ensure participation in secular trends like e-commerce and digital media.

This mix avoids overconcentration, unlike many single-sector income ETFs. For example, FTHI’s Tech-heavy tilt is offset by Financials, creating a diversified cash flow pipeline.

Yield Metrics: A High-Dividend Machine

FTHI’s income profile is its crown jewel:
- Monthly Distributions: The May 2025 dividend of $0.1630 annualizes to a 9.08% yield, far exceeding the S&P 500’s ~1.5% dividend yield.
- SEC 30-Day Yield: At 1.09%, this metric underscores the fund’s consistent premium generation.
- Expense Efficiency: With a 0.76% expense ratio, FTHI keeps costs low for an actively managed ETF, ensuring more of its income flows to investors.

Crucially, FTHI’s yield is not speculative. Its covered call strategy reduces reliance on volatile equity dividends alone, instead leveraging option premiums for stability.

The Volatility Edge: Why FTHI Shines Now

In markets plagued by geopolitical risks and interest rate uncertainty, FTHI’s low beta and short-dated options are a strategic advantage:
- Downside Protection: The 5.23% OTM strike price cushions against drops, while the 23-day expiration limits exposure to sudden swings.
- Upside Capture: While FTHI caps gains if the S&P 500 soars, its monthly rebalancing allows it to reset positions, avoiding permanent overexposure to peaks.
- Liquidity: A 0.23% premium to NAV and tight bid/ask spreads (0.09%) ensure investors can enter or exit positions efficiently.

Risks and Considerations

No strategy is risk-free. FTHI’s income potential hinges on the S&P 500’s volatility and option pricing dynamics. A prolonged bull market could leave it trailing the index. However, in sideways or choppy markets—a likely scenario amid Fed rate uncertainty—FTHI’s steady premiums and monthly dividends become a lifeline for income hunters.

Final Verdict: Act Now

FTHI is more than an ETF; it’s a portfolio stabilizer in turbulent times. Its blend of covered calls, tech-driven growth, and defensive sectors creates a high-yield, low-volatility profile unmatched by most income-focused funds. With its May dividend just paid and a track record of outperforming buy-write benchmarks, now is the time to allocate to FTHI and secure a steady income stream without chasing excessive risk.

The market’s next move is uncertain—but your portfolio doesn’t have to be.