Buy these ASX ETFs for passive income

Income investors might want to check out these funds. Let's see why.

| More on:
A couple sits in their lounge room with a large piggy bank on the coffee table. They smile while the male partner feeds some money into the slot while the female partner looks on with an iPad style device in her hands as though they are budgeting.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The emergence of exchange traded funds (ETFs) as an investment option in recent years has been a real blessing for investors.

ETFs allow investors to buy large groups of shares from all corners of the world with a single click of the button. Previously, you would have to jump through hoops to invest internationally, and some markets were near impossible to gain access to.

Another positive is that ASX ETFs provide investors with easy access to groups of companies that fit a particular investment theme. This could be growth, value, mining or income, for example.

In this article we're going to focus on a couple of funds that offer investors the opportunity to generate passive income from the share market.

One uses a clever covered call strategy to generate income, whereas the other uses a fundamental indexing strategy. Here's what you need to know about these funds:

Betashares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX)

The first ASX ETF that could be a top option for passive income investors is the Betashares Australian Top 20 Equity Yield Maximiser Fund.

It aims to generate attractive quarterly income and reduce the volatility of portfolio returns through the use of a covered call strategy over a portfolio of the 20 largest blue-chip shares listed on the Australian share market. A covered call is an options trading strategy that allows an investor to profit from expected price rises.

Betashares, which recently recommended this ETF, notes that the Betashares Australian Top 20 Equity Yield Maximiser Fund's covered call strategy "performs well in a neutral or gradually rising market."

At present, the ASX ETF was trading with a trailing 12-month dividend yield of 7.6%.

Betashares FTSE RAFI Australia 200 ETF (ASX: QOZ)

A second ASX ETF for passive income investors to consider is the FTSE RAFI Australia 200 ETF.

This fund, which is also being recommended by BetaShares, uses a fundamental indexing strategy which is designed to screen for stocks based on their merits rather than market capitalisation.

BetaShares notes that instead of size, the ETF screens ASX companies using sales, cash flow, dividends, and book value. It then ranks and invests in these companies accordingly.

This means that investors end up holding stocks that have healthier balance sheets, which have a greater capacity to pay dividends.

The Betashares FTSE RAFI Australia 200 ETF currently trades with a trailing dividend yield of 4.7%.

Should you invest $1,000 in Betashares Ftse Rafi Australia 200 Etf right now?

Before you buy Betashares Ftse Rafi Australia 200 Etf shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Betashares Ftse Rafi Australia 200 Etf wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 9 January 2025

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

ETF written in yellow with a yellow underline and the full word spelt out in white underneath.
ETFs

Buy and hold these ASX ETFs for 10 years

Here are some quality buy and hold options for investors to consider loading up on now.

Read more »

A boy's eyes pop wide open as he calculates something on his abacus.
ETFs

How much passive income would a $10,000 investment in Vanguard Australian Shares Index ETF (VAS) make in 2025?

This could be another rewarding year to own the VAS ETF.

Read more »

Happy couple enjoying ice cream in retirement.
ETFs

Here are my 2 favourite ASX ETFs for 2025

These funds could offer investors the right mixture of diversification and quality.

Read more »

A woman presenting company news to investors looks back at the camera and smiles.
ETFs

The only Australian ETFs I own at the start of 2025

Every ETF adds something different to my portfolio...

Read more »

ETF spelt out with a rising green arrow.
ETFs

Invest $10,000 into these ASX ETFs

Let's see why these funds could be great picks for Aussie investors with money to put into the market.

Read more »

A graphic image of the world globe surrounded by tech images is superimposed on the setting of an office where three businesspeople are speaking together while standing.
ETFs

3 reasons I think the Vanguard MSCI Index International Shares ETF (VGS) is a buy in 2025

This ETF has a number of positives.

Read more »

Man looking at digital holograms of graphs, charts, and data.
ETFs

Which ASX ETFs holding international shares delivered the best returns in 2024?

Investors who held international shares via ASX ETFs earned exceptional returns last year.

Read more »

The letters ETF sit in orange on top of a chart with a magnifying glass held over the top of it
ETFs

3 strong ASX ETFs to buy for 2025 and beyond

Here are three funds to consider adding to your portfolio this year.

Read more »