Global X EMCC ETF Offers Steady Income Amid Emerging Markets Volatility

The Global X MSCI Emerging Markets Covered Call ETF (EMCC) has announced a monthly dividend of CAD 0.165 per share for April 2025, maintaining its steady income-generating strategy while navigating the volatility of emerging markets. This dividend, paired with the fund’s low expense ratio and unique covered call approach, positions it as an intriguing option for income-focused investors. However, its performance and tax implications warrant careful scrutiny.

The Covered Call Strategy: Income with a Trade-Off

EMCC employs a covered call strategy, which involves holding stocks in the MSCI Emerging Markets Index while selling at-the-money call options on a reference ETF (the iShares Core MSCI Emerging Markets ETF). This generates premium income but caps the fund’s upside if the market rallies. The strategy’s low turnover rate of 7.45%—versus a category average of 56.19%—suggests minimal trading costs, supporting its efficiency.

The April dividend of CAD 0.165, paid monthly, aligns with the fund’s goal of predictable income. However, investors should note that distributions may include a return of capital, which reduces the adjusted cost basis and defers tax until the fund’s net asset value (NAV) falls below this basis.

Low Costs in a High-Expense Category

EMCC’s net expense ratio of 0.60% is notably lower than the 1.10% category average, making it cost-efficient for an actively managed ETF. This is partly due to its passive-like structure, as the fund tracks an index while adding the covered call overlay. The management fee of 0.65% (plus sales tax) is offset by fee waivers or reimbursements, as reflected in the 0.60% net ratio.

Performance: Mixed Results, But Early Returns Are Positive

As of February 21, 2025, EMCC’s 1-year return of 9.26% outperformed the Diversified Emerging Markets category’s 4.96%, though its YTD return of 1.30% lagged the category’s 1.77%. Its 3-year return of 0.00% is underwhelming, but this metric is skewed by the fund’s May 2024 inception.

The fund’s 30-Day SEC Yield of -0.64% (as of November 2024) raises a red flag: it implies that income from holdings alone does not cover expenses, necessitating return-of-capital distributions. Investors must weigh this against the fund’s stated dividend consistency.

Tax Considerations

Distributions from EMCC may include returns of capital, which reduce the investor’s cost basis and are taxed only when the fund is sold or the basis reaches zero. The tax characterization—dividends, capital gains, or return of capital—will be finalized post-year-end. This adds complexity, especially for taxable accounts.

Conclusion: A Balanced Play for Income Seekers

EMCC offers a compelling mix of monthly income and cost efficiency, with a 0.60% expense ratio undercutting peers. Its covered call strategy provides downside protection but limits upside, making it suitable for investors prioritizing steady returns over aggressive growth.

However, the negative SEC yield and reliance on return-of-capital distributions highlight risks. The fund’s 9.26% 1-year return outperforms its benchmark, but its short track record and emerging markets’ inherent volatility demand caution.

For income-focused investors willing to accept these trade-offs, EMCC presents a viable option—particularly if paired with a broader emerging markets allocation to balance its capped upside.

In summary, EMCC’s dividend consistency and low costs make it a contender in the income ETF space, though its performance and tax nuances require careful evaluation.