This ETF income portfolio beat the ASX 200 and delivered a higher yield

Last year, as part of Livewire's Income Series, we challenged ETF providers to build diversified income portfolios using only funds from their own range.

Global X responded with a portfolio yielding approximately 7%, combining high-dividend shares, covered-call strategies, Australian bank credit and fixed income securities.

Twelve months later, the portfolio has achieved exactly what it set out to do: deliver more income than the broader market while also outperforming the S&P/ASX 200.

According to portfolio architect Marc Jocum, Senior Product and Investment Strategist at Global X, FY26 marked a turning point for income investing.

"In a world of higher interest rates, geopolitical uncertainty and potential tax reform, income is increasingly becoming a key driver of total return rather than merely a by-product of it, broadening its appeal across a much wider cohort of Australian investors," he says.

Between 30 June 2025 and 1 June 2026, the portfolio generated a total return of 6.76%, consisting of 1.24% in capital gains, 5.18% in income distributions and 0.34% in franking credits.

What worked, what surprised, and what refinements would Jocum make to the portfolio today?

Income from every angle

The portfolio was designed to generate sustainable income without relying on taking excessive risk, and much of the return came from exactly that source.

While investors often focus on capital gains, the bulk of the portfolio's performance came from distributions generated by high-dividend shares, covered-call strategies and fixed income exposures.

Jocum says a selective approach to Australian income investing was particularly effective.

"While the S&P/ASX 200 returned around 6.5% over the period, including approximately 4% from dividends, both the high-dividend and covered-call allocations outperformed the broader market," he says.

Bonds also played an important role, providing what Jocum describes as a "defensive ballast" while continuing to generate attractive levels of income.

By favouring shorter-duration assets and floating-rate credit exposure through Australian bank credit, the portfolio was better positioned to navigate uncertainty around interest rates while continuing to generate attractive yields.

The standout performer

The biggest contributor to returns was the Global X S&P/ASX 200 High Dividend ETF (ASX: ZYAU).

The fund outperformed the broader S&P/ASX 200 Index by approximately 14% over the review period while delivering materially higher levels of income. 

According to Jocum, portfolio construction played a key role.

"The strategy benefited from avoiding some of the market's weaker-performing healthcare names such as CSL and Cochlear, while maintaining larger positions in ANZ and Westpac," he says.

The ETF also avoided Commonwealth Bank, whose valuation became increasingly stretched throughout the year as investors questioned whether earnings growth and dividend sustainability could justify the premium.

At the same time, overweight exposure to energy companies including Woodside and Santos proved beneficial as geopolitical tensions in the Middle East supported higher oil prices.

Jocum says the result highlights an important lesson for investors.

"High-income strategies can still deliver strong capital growth when supported by the right market conditions and portfolio construction."

The surprise packet

While ZYAU delivered the strongest headline return, Jocum says the Global X S&P/ASX 200 Covered Call Complex ETF (ASX: AYLD) was one of the most pleasing outcomes from a risk-adjusted perspective.

Many investors associate covered-call strategies with sacrificing upside in exchange for income, but AYLD managed to outperform the broader market while taking materially less risk.

The strategy generated income returns of more than 8% by systematically selling call options over a portfolio of Australian equities.

The result was a Sharpe ratio of 1.3 compared to just 0.3 for the broader market (a higher Sharpe ratio means an investment has generated better risk-adjusted returns), while the maximum peak-to-trough drawdown was only 3.6% compared to roughly 9% for the S&P/ASX 200.

"While covered call strategies naturally give up some upside participation during strong market rallies, they were able to monetise elevated market volatility and generate attractive levels of income," Jocum says.

He believes investor awareness of covered-call strategies remains relatively low in Australia but expects adoption to grow as investors seek alternative sources of income and more defensive equity exposures.

Fixed income is underrated

Fixed income was another positive contributor and Jocum believes many investors continue to overlook this part of the market.

"Despite ongoing concerns around inflation and interest rates remaining higher for longer, both investment-grade and high-yield credit delivered returns in the 4-5% range without requiring investors to take excessive duration risk," he says.

One ETF he remains particularly constructive on is the Global X Australian Bank Credit ETF (ASX: BANK).

The fund currently offers a running yield of approximately 6%, monthly income distributions, short-duration characteristics and an average A+ credit rating.

Jocum believes bank credit continues to offer a compelling alternative to bank equities for income-focused investors.

The equity risk premium for banks has compressed significantly, meaning investors are increasingly being asked to take equity-like risks for relatively modest additional returns.

"By contrast, bank debt continues to offer a running yield of around 6% with meaningfully lower risk."

One new addition for FY27

Despite the portfolio's success, Jocum is making one modest adjustment heading into the new financial year.

The portfolio is introducing the Global X S&P Australia GARP ETF (ASX: GRPA), funded by small reductions to the Global X S&P 500 High Yield Low Volatility ETF (ASX: ZYUS) and the Global X US Treasury Bond Currency Hedged ETF (ASX: USTB).

While income remains the primary objective, Jocum says total return still matters.

GRPA currently offers a dividend yield of just under 4% while providing greater exposure to companies with stronger earnings growth characteristics.

Importantly, there is only around 44% overlap between GRPA and ZYAU, helping improve diversification while maintaining an Australian equity focus.

Outside of that change, the portfolio remains largely intact.

Many of the themes that supported performance over the past year remain in place, including attractive income opportunities, elevated equity valuations in parts of the market and ongoing uncertainty around inflation, interest rates and geopolitics.

Read the original portfolio

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3 high-yield ETF portfolios yielding 5.5-7%: Built by the fundies themselves

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