By Patturaja Murugaboopathy

July 29 (Reuters) - U.S. covered call funds are drawing

robust inflows this year as investors search for higher returns

and protection from broader market volatility because of

continued tariff risks and geopolitical tensions.

According to Morningstar data, U.S. derivative income funds,

primarily made up of covered call strategies, attracted a record

$31.5 billion in the first half of this year.

Till the middle of this month, they secured another $2.5

billion, lifting the total net assets to a record $145 billion,

the data showed.

Covered call funds generate income by owning stocks and

selling call options on them, collecting premiums in return.

In choppy markets, like the current one clouded by

macroeconomic uncertainty, these options often expire unused,

allowing the fund to retain the premium as stock prices

typically don't rise enough to trigger a sale.

While gains are capped if markets rise sharply, the

consistent income stream remains appealing.

The JPMorgan Equity Premium Income ETF has offered

a 12-month trailing yield of 8.25%, while the JPMorgan Nasdaq

Equity Premium Income ETF and the Global X Nasdaq 100

Covered Call ETF yielded 11.5% and 13.9%, respectively,

well above the 10-year U.S. Treasury yield of 4.4%.

Chad Harmer, founder and chief investment officer of Harmer

Wealth Management, said covered call funds have also become more

accessible through low-fee ETFs and 401(k) plans.

A 401(k) is a U.S. workplace retirement plan that lets

individuals invest pre-tax income and continue managing those

assets into retirement.

The biggest demand is coming from retirees and conservative

allocators, as these funds on average pay more than bonds and

rise on concerns that broader equity markets may struggle to

keep recent gains.

"We believe that the substantial rally in recent weeks has

already priced in a lot of potential good news, and that

investors should prepare for potential market volatility in the

weeks ahead," said Mark Haefele, chief investment officer at UBS

Global Wealth Management.

Barry Martin, portfolio manager at Shelton Capital

Management, said investors are embracing covered call funds not

just for cash flow generation, but also to manage portfolio

volatility.

"It's a powerful shift in how we approach yield and risk

management. This year, with the increased volatility, it is

especially a good market to sell calls in."