Alternative Yield: Two Canadian Monthly Income ETFs that Aren’t Just Covered Calls

As of May 2026, I am of the opinion that the Canadian ETF industry has more or less pushed covered call ETFs to their limit. Gone are the days where we were just dealing with simple buy-write structures that went long something like the S&P 500 and systematically sold one-month at-the-money covered calls against the portfolio.

Today, things have become much more complicated. In addition to actively managed covered call overlays that dynamically adjust strike prices, expiration dates, and coverage ratios, we are now seeing covered call ETFs tied to specific sectors, single stocks, international equities, and even strategies using 1.25x to 1.3x portfolio leverage.

Personally, I am much more of a total return investor. As nice as it is psychologically to receive a monthly cash distribution, it is important to remember that distributions are not free money. On the ex-distribution date, an ETF’s net asset value, or NAV, mechanically declines by the amount scheduled to be paid out later. That is simply how fund accounting works.

Still though, a lot of Canadian investors like seeing those 8%, 9%, 10%, or even 12% yields show up in their brokerage accounts. And realistically, if that is what investors today are demanding, ETF issuers are going to continue building products around it.

What I find more interesting, however, are the smaller boutique ETF managers that have started moving beyond the traditional covered call playbook altogether. The two ETFs we are going to look at today still pay very high monthly distributions, both well into the double digits on an annualized basis.

But importantly, they are not relying primarily on covered calls to generate that income. Instead, they use entirely different mechanisms, namely cash-secured put selling and exposure to business development companies, or BDCs.

One of the problems with the Canadian monthly income ETF landscape right now is that so many products ultimately end up behaving similarly because they are all harvesting option premiums off equity volatility in roughly the same way.

These alternative approaches at least introduce a somewhat different risk and return profile, which may make them useful as diversifiers within an income-oriented portfolio.

Moat Active Premium Yield ETF (MOAT)

MOAT is an interesting one because it comes through the LongPoint ETFs white-label platform. For those unfamiliar, a white-label ETF platform essentially allows outside portfolio managers and investment firms to launch ETFs without needing to build out an entire ETF issuer infrastructure themselves.

The platform handles things like compliance, administration, exchange listing, fund operations, custody, and distribution support, while the underlying manager focuses on the investment strategy itself. In this case, the strategy is managed by Moat Financial Limited, a registered portfolio manager operating under the securities commissions of British Columbia, Alberta, Ontario, and Nova Scotia.

Founder Chris Thom holds the Chartered Investment Manager, or CIM, designation, the Derivatives Market Specialist, or DMS, designation, and is also a Fellow of the Canadian Securities Institute. You may have seen him make guest appearances on BNN Bloomberg over the years, and in 2020 he was named one of Business in Vancouver’s Top 40 Under 40.

But enough about Chris. Back to MOAT itself. The ETF becomes easier to understand if we break it down into two parts. The first component is the underlying equity strategy. MOAT primarily targets North American stocks, meaning both Canadian and U.S. companies, selected based on the concept of a competitive moat.

Now, when discussing moats, I am going to borrow Morningstar’s framework here because it is probably the best known. Morningstar broadly identifies five sources of economic moats: intangible assets such as patents and brands, switching costs, network effects, cost advantages, and efficient scale.

For example, a company like Visa benefits from network effects because merchants and customers both gravitate toward the largest payment ecosystem. A firm like Microsoft benefits from switching costs because once businesses integrate software deeply into their workflows, migrating away becomes expensive and disruptive. Railroads benefit from efficient scale because duplicating an entire rail network simply does not make economic sense.

Now, Chris may not follow Morningstar’s framework, but the broad principles are similar. Evaluating moats is often less about hard quantitative screening and more about qualitative judgment. The core question is whether a business can realistically defend its competitive position for a decade or longer, and if so, why. That is essentially what MOAT is trying to identify.

But importantly, MOAT does not simply buy these companies outright. Remember, this is still an options-focused income ETF. Instead, MOAT often enters positions by writing shorter-dated out-of-the-money cash-secured put options. To sell one of these puts, the fund must hold enough collateral to potentially buy 100 shares of the stock at the strike price if assigned.

In simple terms, think of it as getting paid upfront in exchange for agreeing to potentially buy a stock later at a price you already consider attractive. For value investors, this can be a useful approach because it essentially allows you to get “paid to wait.” If the stock falls to the strike price, you acquire shares at a valuation you were already comfortable owning. If the stock stays above the strike, the option expires worthless and you simply keep the premium.

Of course, there are trade-offs. If the stock rallies aggressively higher, you may never get assigned and thus miss a large portion of the upside. Conversely, if the stock collapses well below the strike price, you can still end up owning it at a cost basis meaningfully above the current market price.

Looking at MOAT’s latest disclosed positioning as of April 24, 2026, the fund’s largest short put exposures included Dollarama, General Motors, TC Energy, Microsoft, Meta Platforms, Cenovus Energy, Teck Resources, Rogers Communications, Cameco, and Pfizer. And remember, all of these positions are backed by cash collateral sitting underneath the strategy.

As for income, MOAT pays monthly distributions. The latest ex-dividend date was April 29, 2026, with a payout date of May 4, 2026, and a distribution of $0.20 per share. If we annualize that current monthly payout by multiplying it by 12 and dividing it by MOAT’s net asset value as of May 14th, we arrive at an annualized distribution yield of roughly 12.07%, which is quite high.

That said, the exact tax characteristics are still unclear because the ETF has not completed a full tax year yet. My expectation is that a meaningful portion of the distribution may ultimately be classified as return of capital, which is generally not immediately taxable and instead reduces your adjusted cost base.

As for fees, the management expense ratio is not yet available because MOAT has not been operating long enough, but the stated management fee currently sits at 0.75%. And that is one of the unavoidable downsides of active management. It is generally going to cost more than a passive index ETF.

Accelerate Diversified Credit Income Fund (INCM)

I think a lot of investors overlook bonds when they think about income strategies because fixed income generally lacks the upside appreciation potential of equities. But you know what else lacks a lot of upside appreciation? Covered calls. At the end of the day, many high-yield covered call ETFs are also sacrificing future upside in exchange for current cash flow.

Fixed income just does it through a different mechanism. With bonds, particularly lower-quality bonds, you are essentially trading market risk for credit risk. The risk is less about equity volatility and more about whether or not the borrower can continue servicing their debt obligations.

And generally, the lower the credit quality goes, the higher the yield investors demand as compensation. Once you move below investment grade, meaning below BBB rated debt, yields start climbing rapidly.

For example, if you buy a U.S. high-yield bond ETF concentrated in CCC rated debt, double-digit yields are not unusual. But the trade-off is that if economic conditions deteriorate, those same bonds can get absolutely crushed as defaults and restructurings rise.

There is another alternative though, and it sits somewhere between equities and traditional bonds. They are called business development companies, or BDCs.

BDCs are a uniquely American structure created by Congress in 1980 to help channel capital into small and medium-sized private businesses. They operate as pass-through investment vehicles somewhat similar to REITs. In exchange for distributing the majority of their taxable income to shareholders, they receive favorable tax treatment.

In practice, BDCs act as a bridge between Wall Street and Main Street. They trade publicly like stocks, but underneath, they hold diversified portfolios of loans and financing agreements made primarily to middle-market private companies. You can think of them as a publicly traded proxy for private credit.

And that matters because private credit has exploded in popularity over the last decade as banks pulled back from lending to smaller businesses due to post-financial crisis regulations.

We do not really have a direct equivalent in Canada. For Canadian investors though, one of the easiest ways to access the BDC space is through INCM. Personally, I prefer an ETF like INCM because individual BDC analysis can get very complicated very quickly.

When evaluating a standalone BDC, you need to monitor things like non-accrual rates, which refer to loans where borrowers have stopped making interest payments. You need to watch payment-in-kind income, or PIK income, where borrowers are paying interest with additional debt instead of cash.

You need to look closely at leverage ratios because BDCs themselves often use leverage to amplify returns. And importantly, you also need to monitor whether the BDC is trading at a premium or discount to its underlying net asset value (NAV). That is a lot for the average investor to track consistently.

So, packaging the space into an ETF and outsourcing the selection and monitoring process to a specialist manager like Julian Klymochko at Accelerate is, in my opinion, a fairly reasonable trade-off.

The income here is substantial. In dollar terms, the ETF is currently paying a monthly distribution of $0.14 per share. As of May 15, 2026, INCM is paying a 12.51% annualized distribution yield. The same applies to the U.S. dollar denominated version (INCM.U) Meanwhile, the Canadian dollar hedged version (INCM.B) currently yields slightly higher at 13.01%.

Of course, as with MOAT, this is not going to be a low-cost ETF. The stated management fee for INCM is 0.75%, and according to the most recent ETF Facts document dated March 21, 2025, the management expense ratio, or MER, sits at 1.37%.