Staying Invested While Managing Volatility and Cash Flow
As we move into 2026, many DIY investors are wrestling with the same challenge: How do you stay invested in equities to capture growth without absorbing unnecessary volatility or leaving income on the table?
Covered call ETFs are increasingly part of the solution. They aren’t new, but in the 2026 environment — one defined by elevated valuations, moderating rate cycles, and persistent macro uncertainty — they are more relevant than they’ve been in years.
The 2026 Macro Setup: Growth With Friction
Ninepoint’s 2026 Market Outlook frames the year ahead as a continuation of transition. While the aggressive rate cuts of 2025 provided a strong tailwind, the key question now is whether central banks have finished easing.
In the U.S., stronger economic activity supported by fiscal spending, combined with still-elevated inflation, could prompt policymakers to signal an end to the easing cycle. In Canada, the central bank has indicated it has likely exhausted its current cycle unless economic weakness materially worsens.
The Ninepoint View:
Constructive but Cautious:1 Ninepoint remains constructive on global equities, viewing the bull market that began in 2022 as still relatively young, supported by AI-driven capital expenditure and solid earnings growth.
- Elevated Valuations: With markets near all-time highs, the "easy gains" are likely behind us.
- Volatility is the Base Case: After a strong 2025, Ninepoint expects a year where growth continues, but not in a straight line.
In short: recession is not the base case, but neither is a runaway rally. This "nuance" is exactly where covered call strategies become compelling.
The Canadian ETF Revolution: A Record-Breaking 2025
The broader industry tailwind is impossible to ignore. While U.S. ETF inflows reached approximately $1.3 trillion in 2025, the Canadian market saw even more explosive relative growth.
According to data from National Bank Financial and the Canadian ETF Association (CETFA), the Canadian ETF industry shattered all previous records in 2025:
- Total Inflows: Canadian ETFs saw a staggering $125.8 billion in net inflows, the first time annual inflows have exceeded the $100 billion mark.2
- AUM Milestone: Total assets under management in Canadian-listed ETFs hit $713 billion by year-end 2025.3
- Covered Call Strength: Within the equity space, covered call ETFs made history, gathering nearly $9.8 billion in new assets as investors pivoted toward "yield-plus-growth" strategies.4
This shift isn't just a fad; it’s a structural change. The Canadian market has already started 2026 with a bang, recording $22.3 billion in inflows in January alone — more than double the monthly average of 2025.
Why 2026 May Favor the Income Overlay
Several forces identified in Ninepoint's outlook point toward moderate, rather than explosive, equity returns:
- Maturing Rate Cycles: The tailwind from falling rates is fading, shifting the focus back to organic fundamentals and cash flow.
- Stretched Valuations: When markets are priced for optimism, future returns tend to normalize.
- Downside Cushion: The premium collected acts as a buffer. It won’t eliminate losses in a bear market, but it can reduce volatility relative to pure equity exposure.
As Ninepoint’s Co-CEO John Wilson notes in his 2026 strategy briefings, covered calls work best in "sideways markets" where they can generate incremental income to buffer the dispersion across sectors.
Final Thoughts
2026 is shaping up to be a year of balance. Growth continues, but with friction; equities are constructive, but valuations are high.
For DIY investors, covered call ETFs offer the "middle path": Income, participation, and discipline. Sometimes smarter exposure isn't about swinging for the fences — it’s about getting paid consistently while you stay in the game.
Sources:
1Ninepoint Partners: 2026 Market Outlook - Trends to Watch
2Advisor.ca / National Bank: New Year, New Records: Canada’s ETF Industry Starts 2026 With a Bang
3Investment Executive: Canada's ETF Industry Set New Records for Inflows in 2025
4CETFA: Canadian ETF Industry Highlights & Monthly Reports
