A covered-call ETF holds stocks and writes call options against them. Option premiums are collected as income and distributed as part of the yield.
The trade-off is capped upside. When the underlying rallies above the strike, the options get exercised or offset and the fund gives up some gains.
During flat or mildly rising markets, covered-call ETFs can beat a plain-vanilla equivalent. During sharp rallies, they underperform significantly.
In Canada, Harvest, Hamilton, BMO, and Evolve all run covered-call products. Expense ratios run higher than index ETFs; yields often exceed 6-10%.
Think of covered-call ETFs as income-oriented, not growth-oriented. Use them when you need cash flow and accept the ceiling.