Core Viewpoint - The article discusses high-yield exchange-traded funds (ETFs) that can provide substantial passive income while maintaining a focus on long-term growth, particularly in light of potential interest rate cuts later in the year [4]. Group 1: High-Yield ETFs - ProShares Russell 2000 High Income ETF (ITWO) targets high monthly income from small-cap U.S. stocks and aims for long-term total returns comparable to the Russell 2000 Index [5]. - ITWO has a yield of 11.37%, while iShares Treasury BuyWrite Strat ETF (TLTW) yields 14.71%, and Westwood Salient Enhanced Midstream Income ETF (MDST) yields 9.03% [8]. - ITWO employs a "daily reset" approach, which contrasts with traditional covered call ETFs that sell monthly options, potentially capturing more upside in bull markets [7]. Group 2: Market Position and Performance - Smaller-cap stocks have been underperforming, but recent interest rate cuts are revitalizing these stocks, leading to strong performance in the Russell 2000 Index over the past few months [6]. - MDST focuses on midstream energy pipelines that earn fee-based revenues from increased U.S. energy exports to Europe, positioning it well in the current market [8]. - A select group of ETFs has successfully generated substantial yields without excessive risk, indicating potential for meaningful passive income opportunities [4].

Core Insights - The article discusses the potential benefits of small-cap covered call ETFs, which can provide both small-cap performance and income, especially in a volatile market where large-cap stocks appear expensive [1][2]. Group 1: Small-Cap Covered Call ETFs - Small-cap covered call ETFs combine the growth potential of small-cap stocks with income generation through selling options, appealing to investors seeking diversification from large-cap exposure [2]. - The popularity of covered call ETFs has surged, with new products being launched to meet increasing demand, as they can yield returns that often exceed those of bonds [2]. Group 2: Trade-offs in Covered Call Strategies - Traditional covered call strategies involve a trade-off where high income is achieved at the cost of total returns, particularly when stocks rally past the strike price of sold options [2]. - This trade-off is particularly pronounced in small-cap strategies, where capping upside during a rally can significantly impact investor returns [2]. Group 3: Innovative Solutions - The ProShares Russell 2000 High Income ETF (ITWO) utilizes a daily options strategy, which allows for better capture of market upside, thus improving the balance between income and total returns [2].

Core Viewpoint - Small-cap U.S. stocks are showing signs of a potential comeback after a prolonged period of underperformance, with recent data indicating positive trends for investors in this segment [1] Group 1: Market Performance - The iShares Russell 2000 ETF (IWM) has gained approximately 28% over the past six months, outperforming the SPDR S&P 500 ETF Trust (SPY), which saw a 23% increase [1] - The Russell 2000 index surpassed the 2,500 mark for the first time, indicating a significant milestone for small-cap stocks [1] Group 2: Economic Factors - Early-year weakness in small-cap stocks was largely attributed to President Trump's announcement of higher tariffs, which adversely affected smaller companies [2] - The annual inflation rate in the U.S. rose to 3% in September 2025, up from 2.9% in August, which may influence the Federal Reserve's monetary policy [3] - The Federal Reserve has already implemented its first rate cut of 2025 and is expected to consider additional cuts, which could benefit small-cap stocks [4][5] Group 3: Trade Relations - Recent easing of trade tensions, including potential trade deals with China and India, may provide a favorable environment for small-cap stocks [6] Group 4: Valuation Metrics - The Russell 2000 is currently trading at a P/E ratio of 34.32, an increase from 29.87 a year ago, indicating that small-cap stocks are not necessarily undervalued [7] - In comparison, the Nasdaq 100 Index has a P/E ratio of 33.25, while the S&P 500 Index stands at 25.58, suggesting that small caps are relatively more expensive [8] Group 5: Top Performing Small-Cap ETFs - Fidelity Enhanced Small Cap ETF (FESM) has shown a six-month performance increase of 31.49% with an AUM of $2.85 billion [10] - Vanguard Russell 2000 ETF (VTWO) has increased by 29.4% over six months, with an AUM of $13.3 billion [10] - Other notable ETFs include Federated Hermes MDT Small Cap Core ETF (FSCC) with a 31.7% increase and Global X Russell 2000 ETF (RSSL) with a 29.2% increase [11]