$45B AUM firm’s SVP of product development explains the shift in income ETFs.
Income has long been one of the most consistent requests advisors hear from clients, but the way that income is being delivered inside ETFs is changing.
Options-based strategies are no longer limited to straightforward covered-call approaches that simply generate yield from broad equity exposure. Instead, issuers are increasingly using options overlays as a design tool to reshape how portfolios behave and what outcomes they target.
Aga Kuplinska, SVP of Product Development at Tidal Financial Group, tells InvestmentNews that the shift reflects a broader change in how income strategies are constructed.
“Traditional covered-call ETFs were essentially yield enhancement on beta – own the index, sell calls, collect and distribute the premiums. The design was relatively static and straightforward,” Kuplinska says. “Today’s income ETFs are engineered by combining specific exposures with targeted outcomes: distribution targets, hedging components, and sometimes leverage, while the underlying portfolio itself may be actively managed, or entirely synthetic. The options overlays have also become far more sophisticated, we see spreads, collars, short-dated options, etc.”
The result is a different philosophy around portfolio design.
“In other words, traditional covered-call ETFs simply sold options to generate yield. The new generation of income ETFs engineers outcomes. This is no longer just yield enhancement – it is a more holistic portfolio design,” Kuplinska says.
Starting with the outcome
One of the clearest changes in the product development process is where strategy design begins. Instead of selecting an instrument first and then layering income on top, many issuers now start by defining a specific objective.
“Increasingly, yes – the design starts with the outcome, not the instrument,” Kuplinska says. “We’re seeing issuers begin with a specific goal, whether that’s a 10–15% distribution rate or income stability across market cycles, and then reverse-engineer the overlay structure to support that objective.”
In that framework, the options strategy becomes the mechanism used to deliver the result.
“In many ways, the target outcome becomes the headline, while the options strategy is the plumbing behind it,” she says. “That shift toward outcome-first design is one of the key forces fueling product innovation in the ETF market today.”
New areas for income overlays
While covered-call strategies on broad equity indices are now a crowded part of the ETF market, Kuplinska argues that meaningful white space remains in areas where income historically played little role.
“Equity beta overlays have become increasingly crowded,” she says. “At Tidal, we’re seeing growing demand for overlays applied to more niche or emerging areas, particularly segments that historically did not have income attached – such as recent IPOs, digital assets, and other growth-oriented themes.”
The motivation is straightforward.
“Investors increasingly want income everywhere, even from assets that traditionally offered only capital appreciation,” Kuplinska says.
Another opportunity lies in adding overlay strategies to existing long-only portfolios.
“Another potential area of white space, and where we’ve seen a lot of successes, is applying a disciplined income or hedging framework to an existing long-only strategy,” she explains. “Because overlays can monetize volatility, they have the potential to enhance long-only portfolios while also broadening their appeal to investors seeking income or more controlled risk profiles.”
The growth of these strategies reflects both supply-side competition among issuers and demand from financial advisors, but Kuplinska believes advisors are playing the central role.
“It’s probably both, but advisors are absolutely the accelerant,” she says. “Advisors are looking for cash flow solutions that go well with traditional income sources and that offer income narratives they can clearly communicate to clients.”
Issuers respond by turning those needs into scalable products.
“Issuers, in turn, are seeking shelf differentiation, fee resilience, and retail engagement,” Kuplinska says. “Advisors create the demand. Issuers industrialize the solution. It’s a market-driven innovation cycle.”
Understanding the trade-offs
Despite the appeal of enhanced income, Kuplinska cautions that overlay strategies inevitably reshape a portfolio’s return profile.
“The core tradeoff is simple: income today versus upside tomorrow,” she says. “When options overlays are applied to growth strategies for example, they can cap convexity, introduce path dependency, and potentially sacrifice sharp upside rebounds.”
That means the suitability of these strategies depends heavily on client priorities.
“Income overlays reshape the return profile of a fund, and yield is never free,” Kuplinska says. “The key for advisors is alignment. If a client prioritizes cash flow over maximum upside participation, an overlay strategy may be appropriate.”
For advisors evaluating these funds, understanding the mechanics of the overlay is critical.
“Advisors need to understand how overlays can transform the return potential and acknowledge that enhancing yield is never without a cost,” she says.
Innovation versus commoditization
As certain overlay structures prove successful, issuers often replicate them across multiple underlying exposures. Kuplinska says that pattern is already visible in the market.
“Among successful issuers there is certainly some templating taking place – once a structure proves successful, it often gets applied across different underlyings,” she says. “Differentiation then comes from refinement: how strikes are selected, how expirations are layered, how volatility is incorporated, and how distributions are managed.”
That refinement, rather than simple replication, ultimately determines which strategies succeed.
“A consistent structure can help create scale, but strategy refinement is what creates edge,” Kuplinska says. “Across issuers, we rarely see success from simply copying what is already in the market and being second or third to launch. Our general recommendation is to refine the strategy in a way that creates clear differentiation.”
Where ETF innovation is heading
Looking ahead, Kuplinska expects income to remain a central driver of ETF product development.
“We expect income to remain one of the key drivers of innovation,” she says. “Demand for yield rarely disappears, and in uncertain markets the added benefit of income tends to resonate strongly with investors.”
Future launches are likely to focus on increasingly precise portfolio outcomes.
“The next generation of income ETFs will likely become even more precise in targeting specific outcomes,” Kuplinska says. “Income stability, volatility control, and convexity shaping are likely to define the next cycle of product innovation.”
At the same time, she sees the ETF vehicle itself continuing to evolve.
“Beyond income, we are already seeing the ETF evolve beyond a passive wrapper into a flexible vehicle capable of delivering increasingly sophisticated portfolios—ultra-niche or precision thematics, tactical trading tools, and fully synthetic builds,” Kuplinska says.
As the market grows more complex, the differentiators may ultimately come down to execution.
“As the ETF market continues to evolve, clarity around trade-offs, transparency of structure, and disciplined execution will ultimately separate enduring innovation from fleeting trends,” she says.