XRMI: A Risk-Managed Income Strategy for Volatile Markets

In an era of market uncertainty, income-focused investors are increasingly seeking alternatives to traditional equity exposure. The Global X S&P 500 Risk Managed Income ETF (XRMI) has emerged as a compelling option for those prioritizing defensive returns. By combining the broad market exposure of the S&P 500 with a derivatives-based strategy, XRMI aims to generate consistent income while mitigating downside risk—a proposition that stands in stark contrast to the unmanaged volatility of the S&P 500 itself.

The Mechanics of Risk Management

XRMI's strategy hinges on a net-credit collar approach. The fund holds the S&P 500's constituents while simultaneously purchasing 5% out-of-the-money put options and selling at-the-money call options. This dual-layer strategy serves two purposes: the put options act as a safety net during market declines, while the call options generate premium income. The result is a portfolio that, in theory, caps upside potential but also limits losses during downturns.

For example, during the 2022 market selloff, the S&P 500 plummeted by 20.58%. XRMI, however, posted a -14.04% return, demonstrating the efficacy of its protective puts. While this gap may seem modest, it represents a meaningful buffer for risk-averse investors. The fund's Sharpe ratio of 0.85 and Sortino ratio of 1.27 further underscore its risk-adjusted appeal, particularly in volatile environments.

Dividend Growth: High Yield, But With Volatility

XRMI's dividend yield has consistently outpaced the S&P 500. As of April 2025, the ETF's trailing 12-month yield stood at 12.61%, compared to the S&P 500's sub-1% yield. This discrepancy stems from the income generated by the call options, which are distributed to shareholders alongside dividends from the underlying stocks.

However, the fund's dividend history is not without turbulence. From 2022 to 2025, XRMI cut its dividend 22 times while raising it 13 times, reflecting the cyclical nature of its options strategy. For instance, the fund's monthly payout dropped from $0.1926 in February 2025 to $0.1776 by April, a 7.8% decline. Such volatility may concern income-oriented investors accustomed to the relative stability of blue-chip dividends. Yet, XRMI's ability to maintain a high yield—even amid market stress—positions it as a unique tool for those prioritizing income over growth.

A Trade-Off Between Income and Growth

The key question for investors is whether XRMI's risk-managed approach is worth the trade-off in growth potential. Over a 3-year period ending July 2025, the S&P 500 delivered an annualized return of 17.67%, while XRMI lagged with 4.03%. This gap widened in 2024, when the S&P 500 surged 25.02% compared to XRMI's 15.17%. Such underperformance is inherent to the collar strategy, which sacrifices upside participation to protect against downturns.

Yet, in bear markets, the strategy shines. During the 2022 correction, XRMI's -14.04% loss was significantly better than the S&P 500's -18.11%. This dynamic makes XRMI a potential hedge for investors who want to stay exposed to equities without accepting full market risk. The fund's 8.41% distribution yield, while enticing, should also be viewed in the context of its risk profile: it is not a traditional dividend growth vehicle but a structured product designed for defensive income.

Is XRMI Right for You?

XRMI's appeal lies in its dual role as an income generator and a volatility reducer. For retirees or conservative investors, the ETF's high yield and downside protection could offer a more stable income stream than the S&P 500. However, those with a higher risk tolerance or a long-term growth focus may find the fund's capped upside and inconsistent dividends less appealing.

Investors should also consider the broader market environment. In a rising interest rate scenario, the value of XRMI's short call options may decline, reducing income potential. Conversely, in a downturn, the fund's protective puts could provide critical support.

Conclusion

The Global X S&P 500 Risk Managed Income ETF is a nuanced tool for investors seeking to balance income generation with risk mitigation. While its dividend consistency is not on par with traditional dividend champions, its high yield and structured strategy make it a compelling alternative in volatile markets. For those willing to accept the trade-off between income and growth, XRMI offers a defensive approach to equity exposure—one that could prove invaluable in an era of market turbulence.

As always, investors should align their allocations with their risk tolerance and financial goals. For income-focused portfolios, XRMI's blend of yield and protection may be worth the premium.