What Is NAV Erosion?
Net Asset Value (NAV) erosion is a gradual decline in a fund's share price over time, separate from any single ex-dividend price drop. For income-focused ETFs, the key question isn't whether the share price ever falls — it's whether total return (distributions plus price change) has been positive or negative over your holding period.
Why It Happens in Covered-Call ETFs
A covered-call strategy caps upside (see the Covered Call ETF Guide) while remaining exposed to downside in the underlying. If the underlying declines, or even just trades sideways while the fund distributes a large share of its option income as cash, the share price can drift downward over time even as the fund keeps paying distributions.
How to Evaluate It
Look at price trend alongside distribution history, not distributions alone — CRADY's CRADY Score explicitly factors in price volatility and maximum drawdown for exactly this reason, so a fund with an eye-catching yield but poor underlying price stability scores lower than a similarly-high-yielding but steadier fund. Check the ETF Ranking to compare funds on that combined basis rather than yield alone.
This page is educational and general in nature — it is not investment advice.
Frequently Asked Questions
Not necessarily on its own — what matters is total return (distributions plus price change) over your actual holding period, not price decline in isolation. It does mean high distributions alone aren't a complete picture of performance.
Compare its price trend over 6-12 months against its distribution total for the same period. CRADY's CRADY Score already factors in volatility and maximum drawdown to help surface this at a glance.
The degree varies significantly by fund, underlying, and market conditions — it isn't universal or guaranteed, but it's a structural risk inherent to the strategy that's worth checking for specifically.