The Rise of a New Monthly Income ETF: Why It's Challenging SCHD's Dominance

In a market where yields are scarce and volatility is rampant, the Schwab U.S. Dividend Equity ETF (SCHD) has long been the gold standard for income-focused investors. For over a decade, its disciplined approach to dividend investing—targeting high-quality, stable payers like Coca-Cola, Johnson & Johnson, and Procter & Gamble—has delivered consistent returns and a reliable yield. But in 2025, a bold new challenger is shaking up the landscape: the VistaShares Target 15 Berkshire Select Income ETF (OMAH). This fund, with its aggressive 15% annualized yield target and monthly payouts, is redefining what investors expect from passive income strategies in a low-yield world.

The New Contender: OMAH's Disruptive Strategy

OMAH's formula is as audacious as it is precise. By anchoring its portfolio to the top 20 holdings of Berkshire Hathaway—Apple, American Express, and Bank of America among them—and layering a covered-call options strategy on top, the fund generates income through two channels: dividends from blue-chip equities and premiums from selling call options. This dual-income approach has allowed OMAH to deliver a staggering 1.25% monthly distribution, translating to a 15% annualized yield. By comparison, SCHD's 3.75% yield, while reliable, pales in contrast.

The fund's structure, however, comes with caveats. Over 95% of OMAH's distributions are classified as return of capital, meaning most of its income is derived from options premiums rather than traditional dividends. This distinction is critical: while it boosts yield metrics, it also signals that the fund's income is less sustainable in a market downturn. Additionally, OMAH's 0.95% expense ratio is nearly 16 times higher than SCHD's 0.06%, a premium investors must weigh against the potential for higher returns.

SCHD's Enduring Strength

SCHD, by contrast, is a paragon of consistency. Over the past five years, it has delivered a 12.88% annualized return, outperforming both its index benchmark and most peers. Its AUM has grown from $45 billion to $100 billion since 2020, reflecting a base of investors who prioritize stability over high-risk innovation. The fund's low volatility—its beta of 0.88 and 200-day volatility of 21.67%—has made it a defensive anchor in turbulent markets.

Yet, even SCHD's strengths have limits in today's environment. With U.S. Treasury yields hovering near 4.5% and cash alternatives gaining traction, investors are increasingly willing to trade off some capital preservation for higher income. SCHD's quarterly payout schedule and modest yield fail to meet this demand, creating an opening for OMAH's monthly distributions and aggressive yield profile.

Market Trends Fueling the Shift

The rise of OMAH is not an isolated phenomenon but part of a broader shift in passive income strategies. In a low-yield world, investors are abandoning traditional bonds and dividend stocks in favor of structured products that generate income through alternative means. Covered-call ETFs, inverse ETFs, and securitized credit vehicles are gaining popularity as investors seek to replicate the high yields of private markets without the illiquidity.

This trend is amplified by macroeconomic forces. Central banks' cautious approach to rate cuts and the lingering effects of inflation have made equities appear overvalued by historical standards. Meanwhile, private credit and real estate are offering yields of 6–8%, but their lack of liquidity and complexity deter many retail investors. OMAH's hybrid model—combining blue-chip exposure with active income generation—fills this gap, offering a middle path between passive equity investing and high-risk alternatives.

Investor Sentiment and Risk Considerations

OMAH's rapid ascent—$356 million in AUM in six months—reflects its appeal to income-starved investors. Its monthly payouts align with the growing preference for cash flow over capital appreciation, particularly among retirees and those in accumulation phases seeking to supplement bond portfolios. However, the fund's reliance on options premiums introduces unique risks. If the market corrects sharply, the covered-call strategy could cap gains while exposing investors to principal erosion from declining underlying stock prices.

SCHD, meanwhile, benefits from its simplicity and transparency. Its focus on companies with long dividend histories provides a floor for income, even in downturns. While its yield is modest, its distributions are fully classified as income, offering tax advantages in certain jurisdictions. For investors prioritizing resilience over aggressive yield, SCHD remains a compelling choice.

The Future of Dividend Investing

The competition between OMAH and SCHD highlights a pivotal question: Can active income strategies outperform traditional dividend investing in the long term? OMAH's early performance suggests that its model can generate superior yields in a sideways or rising market, but its success hinges on market stability. In a bear market, the fund's return of capital distributions may erode principal faster than SCHD's dividend-driven income.

For 2025 and beyond, the answer may depend on macroeconomic trends. If inflation remains subdued and interest rates stabilize, OMAH's strategy could thrive, offering investors a compelling alternative to traditional dividend ETFs. However, if volatility persists or the economy enters a recession, SCHD's defensive characteristics and lower costs may make it the safer bet.

Strategic Recommendations

For long-term investors seeking a balance between income and capital preservation, a diversified approach may be optimal. Pairing OMAH's high-yield strategy with SCHD's defensive positioning could hedge against market extremes. For example, allocating 60% to SCHD and 40% to OMAH could provide a 6.5% blended yield while maintaining exposure to high-quality equities.

Those with a higher risk tolerance and a focus on cash flow may lean further toward OMAH, particularly in tax-advantaged accounts where return of capital distributions are less impactful. Conversely, conservative investors should prioritize SCHD's stability, especially in portfolios nearing or in retirement.

In the end, the rise of OMAH signals a new era in dividend investing—one where innovation and tradition coexist, and where investors must weigh yield potential against sustainability. As the low-yield environment persists, the ETF that best adapts to shifting investor priorities will likely emerge as the leader. For now, both OMAH and SCHD offer compelling paths, but the choice between them will depend on one's tolerance for risk and the market's next move.