The Yield Playbook For a Sideways Market

After a heroic run of the S&P 500, many of the tried and true growth drivers have taken a breather in 2025.

First, the rollout of DeepSeek cast doubt on the previously forgone conclusion that the Mag 7 would dominate, in an uncontested fashion, AI value capture. That was the first ding.

Next, the current administration’s tariff warpath has rattled the free market economy and long-standing relationships with some of the country’s core trading partners. It’s the biggest wave of protectionism since the second world war. Major ding.

Markets are on a hairpin trigger.

But every day advisors are still faced with the question of where to park client capital.

WisdomTree’s Global Chief Investment Officer Jeremy Schwartz believes advisors should explore equity premium ETFs as an alternative. Let’s dive right in.

No one has a crystal ball, but can you talk to us a little bit about overall market conditions and the state of the markets right now? 

Market uncertainty levels have increased as the economy adjusts to the new administration policies. There is an overarching fear of elevated market valuations, combined with fears of a slowdown that come from lower government spending with the Trump Administration desires to cut $1 trillion federal spending. There are positives for the market from anticipated drops in regulatory burdens and costs and potentially extensions or even lowering of tax rates. But volatility levels have increased and are likely to remain elevated in 2025. 

Talk to us a little bit about WisdomTree Equity Premium Income Fund (WTPI), the mechanics and asset allocation, and how it is designed to perform in down, flat, and up markets.

WTPI sells put options. Specifically, WTPI seeks to track the price and yield performance, before fees and expenses, of the Volos US Large Cap Target 2.5% PutWrite Index. The index methodology specifies selling options every two weeks, not every month. Instead of holding an underlying basket of equities, the strategy is holding a basket of short-term, US Treasury securities.

In some ways, this strategy may benefit from elevated levels of volatility that compress. In a higher volatility environment, there can be good income levels to capture by selling options. Your upside is limited to the premium income you collect by selling options, but this helps generate returns in flat, choppy, or sideways markets. The income generation can also cushion some of the downside from outright long positions in the market. When markets rise, the strategy will tend to underperform 100% equities exposure, but by focusing on generating 2.5% premiums, it can still add up.

How did the volatility of WTPI compare to traditional equities or other asset allocation strategies in recent history?

The S&P 500 had a volatility level, measured by standard deviation, greater than 16% over the last 3-years, while a 60/40 balanced fund approach of stocks and bonds was around 12%. WTPI’s volatility was under 10% over that same 3-year period, showing it can be a lower-risk approach compared to traditional equities. Yet over the last 5 years, the 60/40 balanced approach provided returns of just 7.8% per year while WTPI returns were 10.7% per year. This is a potentially attractive combination: higher returns and less risk than an alternative to a traditional 60/40 approach. This also provides a way to consider incorporating WTPI in asset allocation portfolios as it represents some element of a mix of stocks and bonds.

Why do you think now might be the right time for an equity premium ETF?

The macro backdrop I mentioned before with relatively higher market multiples and nearly all-time highs on the markets could leave one thinking that the upside in US stocks is more muted. This is not a period right after a major market crash where big rebounds are expected. This is exactly the type of environment in which WTPI could be well positioned. 

What is unique about WTPI and its strategy?

When WisdomTree first entered the options space a number of years ago, we were tracking an index that only wrote options once a month and had less predictability in how much income could be generated. What is interesting about WTPI now is the more diversified approach to the date of option selections, as it rolls the options every two weeks. Additionally, I’ll highlight the consistent income generation target that adjusts to market conditions. 

 How are the option premiums taxed, and what are the implications for after-tax returns?

WisdomTree is not in position to give personal tax advice, but we do provide materials on our website that break down the source of distributions. Because the collateral component of the Fund is invested in Treasuries, there will be income in the form of regular ordinary income distributions. There can also be return of capital distributions from the options and there could potentially be capital gain income.

For those interested in WisdomTree Equity Premium Income Fund (WTPI), you can read more here.

Unless otherwise noted, data as of 4/7/25.

GLOSSARY:

S&P 500:Market capitalization-weighted benchmark of 500 stocks selected by the Standard and Poor’s Index Committee designed to represent the performance of the leading industries in the United States economy.

Volos US Large Cap Target 2.5% PutWrite Index: Tracks the value of a cash-secured (i.e., collateralized) put option sales strategy, which consists of selling (or “writing”) put options on the SPDR S&P 500 ETF Trust (SPY) and a cash collateral account that accrues interest at a theoretical three-month Treasury bill rate.

Standard deviation: measure of how widely an investment or investment strategy’s returns move relative to its average returns for an observed period. A higher value implies more “risk”, in that there is more of a chance the actual return observed is farther away from the average return.

60/40 approach: A typical portfolio of 60% equities and 40% fixed income.

IMPORTANT INFORMATION

Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance data for the most recent month-end or standardized performance, please visit here. 

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund before investing. For a prospectus or, if available, the summary prospectus containing this and other important information about the fund, call 866.909.9473 or visit WisdomTree.com/investments. Read the prospectus or, if available, the summary prospectus carefully before investing.

WTPI Risk Information: There are risks associated with investing, including the possible loss of principal. The Fund will invest in derivatives, including S&P 500 Index put options (“SPX Puts”). Derivative investments can be volatile, and these investments may be less liquid than securities, and more sensitive to the effects of varied economic conditions. The value of the SPX Puts in which the Fund invests is partly based on the volatility used by market participants to price such options (i.e., implied volatility). The options values are partly based on the volatility used by dealers to price such options, so increases in the implied volatility of such options will cause the value of such options to increase, which will result in a corresponding increase in the liabilities of the Fund and a decrease in the Fund’s NAV. Options may be subject to volatile swings in price influenced by changes in the value of the underlying instrument. The potential return to the Fund is limited to the amount of option premiums it receives; however, the Fund can potentially lose up to the entire strike price of each option it sells. Due to the investment strategy of the Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.

WisdomTree Funds are distributed by Foreside Fund Services, LLC. 

Jeremy Schwartz is a registered representative of Foreside Fund Services, LLC.