The question
"Two funds promise the same thing. How do I tell which one actually does its job?"
The idea
- Ask three separate questions, because each catches something the others miss:What does it cost? The expense ratio (What a fee costs).How did it do against its benchmark? Total return against the fund it's measured against (Your first fund check).Did it keep its promise? Every category promises something. An income fund promises income without spending your capital. ETFIQ's Promise check divides total return by the cash paid. Total return is roughly cash plus price change, so 100% or more means the price held: Delivered. From 50% to under 100%: Partly. Under 50%: Missed.
Worked example
Two income funds that write options on the S&P 500, both measured against SPY. Every return covers the year to Nov 10, 2026. Fees are each fund's latest stated rate.
Check 1. Cost.
- XYLD: 0.60% a year, $60 on $10,000
- SPYI: 0.68% a year, $68 on $10,000
Close. Fee alone barely separates them.
Check 2. Against the benchmark. SPY returned 11.2%.
- XYLD: 13.6% − 11.2% = +2.4 points
- SPYI: 11.3% − 11.2% = +0.1 points
XYLD finished ahead of SPY over this year; SPYI finished ahead of it.
Check 3. The promise. Total return ÷ cash paid:
- XYLD: 13.6% ÷ 10.6% = 128.3%. Delivered. Its price rose 2.3%.
- SPYI: 11.3% ÷ 12.0% = 94.2%. Partly. Its price fell 1.2%.
Cash and price change don't add exactly to total return, because total return counts each payout as reinvested when paid.
The two checks ask different questions. One asks whether a fund beat SPY. The other asks whether its total return covered the cash it paid. SPYI paid 12.0% in cash, and its total return was 94.2% of that cash.
Check 4. Read the category. Of 334 measured income ETFs, 74 (22.2%) delivered over the year to Nov 10, 2026. Delivering is not the norm here, so the badge carries real information.
A fund can pass one check and miss another, so run all three. These two are examples for practice, not picks.
The common mistake
"The higher payout is the better product." SPYI paid 12.0% against XYLD's 10.6%, and its total return covered 94.2% of that cash against XYLD's 128.3%. A payout says how much cash left the fund, not whether the fund made it. Read the payout beside total return.
Check your understanding
Pick an answer to see why. Two of three right passes the lesson.
1. Which check tells you whether an income fund paid you out of its own price?Answer: A. The Promise check: total return against cash paid. it compares what the fund earned with what it handed out. Not B: the benchmark check compares total return with SPY and ignores the cash a fund paid.2. Fund K paid 10% in cash and returned 6% in total over a year. What is its Promise check?Answer: B. Partly. 6 ÷ 10 = 60%, between 50% and 100%. Not C: Missed is under 50%.3. Fund M beat its benchmark by 2 points and its Promise check is Missed. What does that tell you?Answer: D. It did well against its benchmark but paid out far more than it earned. the checks answer different questions, so they can disagree. Not A: the checks use different yardsticks, so a fund can lead on one and miss the other.
Takeaways
- Judge a fund on cost, benchmark and promise, separately.
- For an income fund, compare total return with the cash paid, not just the payout.
- Check your fund's Promise badge and its category on ETFIQ's Promise Index.