As Interest Rates Fall, These Equity Income ETFs Can Step Up

Interest rates have fallen once already this fall, and could be set to fall yet more in the months ahead. Should the Fed tame inflation, those cuts could, then, see a shift in investor portfolios’ fixed income allocations as yields drop. That may have some investors looking at their options to boost current income and overall fixed income performance. Equity income ETFs can provide an alternative source of that yield that can compensate. 

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Rates have already fallen by 25 basis points (bps), but could potentially fall yet more if economic conditions change. An economic downturn like a recession could invite even cheaper debt costs and, in turn, lower yields for traditional bonds. Especially for those investors who are at or near retirement and who heavily rely on bond payments, other equity income ETFs could really help their portfolios.

Enter the active equity income ETFs GPIQ and GPIX. The pair of ETFs provide some notable options for investors wanting yield outside of the fixed income category. The Goldman Sachs Nasdaq-100 Premium Income ETF (GPIQ) charges a 29 bps fee. The Goldman Sachs S&P 500 Premium Income ETF (GPIX) also charges 29 bps. 

The funds provide similar strategies in addition to their identical fees, with the difference being their index of focus. GPIX invests in the S&P 500, while GPIQ invests in the Nasdaq 100. Both funds offer exposure to the equities therein, yes. However, their main goal, providing equity income, stems from their use of call options. Both funds sell call options on about 25% to 75% of their holdings, and can use FLEX options, too. Together, they look to otherwise replicate their indexes’ approaches.

That has helped GPIX and GPIQ return 12.1% and 15.1% YTD, respectively, per ETF Database data. That beat both funds’ FactSet Segment Averages over that time frame. Their main benefit, however —  that equity income — can also appeal. According to Goldman Sachs Asset Management data, GPIX provided an 8.17% trailing 12-month dividend yield as of July 31. GPIQ, meanwhile, offered a 9.9% trailing 12-month dividend yield as of August 31 this year.

Together, the pair of active equity income ETFs could make for meaningful options in a complicated 2025. For those advisors with clients needing some additional income as rates drop, GPIQ and GPIX can help.

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