The Durable-Fund Screen: Ranking High-Yield ETFs by Risk-Adjusted Return, Not Yield

The fund paying the biggest yield is almost never the one you should own. Rank a shelf of high-yield ETFs by headline distribution rate and you will reliably sort them from worst to best — because the number that markets a fund tells you nothing about the risk it took or the principal it kept.

Creators have noticed. One recently ranked 90 high-yield ETFs by risk-adjusted return rather than payout; a widely-read screen published a “2026 High Sharpe Ratio” list the same week. Whether or not their exact ordering is right, the instinct is correct: the right way to compare income funds is on risk-adjusted return and a few supporting checks. Here is the method, so you can run the screen yourself.

Why headline yield is the worst possible ranking

A distribution rate is the annualized payout a fund advertises. It can be funded by option premium, dividends, and return of capital — your own money handed back to you. By itself it says nothing about whether the fund earned that money or simply mailed back your principal.

The honest measure is total return: the change in net asset value (NAV) plus the distributions. As Morningstar puts it, “for long-term investors, a fund’s total return is far more important than its distribution rate.” A fund can pay 100% and still lose you money if its NAV falls faster than the checks arrive.

Consider two funds at opposite ends of the project’s tracked universe. SMCY (YieldMax SMCI Option Income) advertises a 213% distribution rate. GPIQ (Goldman Sachs Nasdaq-100 Premium Income) pays 9.3%. Ranked by yield, SMCY wins by a mile. Ranked by what actually happened to investors, the order flips completely.

Headline yield vs. what investors actually earned	Value
SMCY distribution rate	213%
GPIQ distribution rate	9.3%
SMCY total return since inception	−27.8%
GPIQ NAV change since inception	+53.6%

SMCY’s 213% payout produced a negative total return; GPIQ’s 9.3% grew the NAV.

SMCY’s total return since inception is −27.8% — an investor who collected every distribution still lost more than a quarter of their money. GPIQ’s NAV rose 53.6% on top of its payout. The yield ranking pointed at exactly the wrong fund.

Signal 1: Sharpe and Sortino — return per unit of risk

The Sharpe ratio divides a fund’s return (above the risk-free rate) by its volatility. It answers the only question that matters when comparing funds of different riskiness: how much return did you get per unit of risk taken? Higher is better. The Sortino ratio is its sharper cousin — it divides by downside volatility only, ignoring the “good” volatility of upside moves, so it isolates the risk that actually hurts.

A negative Sharpe ratio is a specific verdict: the fund returned less than cash per unit of risk. SMCY’s Sharpe is −0.06; YBIT (YieldMax Bitcoin Option Income, which we’ll meet again on the AUM screen) is −0.31. Both are AVOID-rated: they took on enormous volatility and were paid less than a Treasury bill for it.

Fund	Distribution rate	Sharpe	Sortino	Verdict
GPIQ (Goldman Nasdaq-100)	9.3%	1.37	2.04	BUY
QQQI (NEOS Nasdaq-100)	14.6%	1.01	1.48	BUY
SPYI (NEOS S&P 500)	12.1%	0.82	1.20	BUY
JEPQ (JPMorgan Nasdaq)	10.0%	0.78	1.11	BUY
MSTY (YieldMax MSTR)	366%	0.30	0.44	PASS
SMCY (YieldMax SMCI)	213%	−0.06	−0.09	AVOID

One caution: there is no universal “minimum acceptable Sharpe.” Bands like “above 1 is good” are rough heuristics that shift with the measurement window — most diversified indexes run below 1. Use Sharpe to rank funds against each other, not as a pass/fail line.

Signal 2: NAV trajectory vs. distributions

A high payout sitting on top of a collapsing NAV is the classic yield trap. The fix is to look at the NAV line directly: is the fund’s principal growing, holding, or melting while it pays you?

MSTY (YieldMax MSTR Option Income) carries the highest headline in the entire tracked universe — a 366% distribution rate. Its NAV has fallen from roughly $106 at inception to about $12, a −89.1% collapse, and its trailing one-year total return is −74.6%. The payout is real cash; it is also, in large part, the fund liquidating itself into your account.

MSTY — a 366% headline against a melting NAV	Value
Distribution rate	366%
1-year total return	−74.6%
NAV change since inception	−89.1%
AUM trend	−55.4%

One year, four screens failed at once.

Signal 3: Maximum drawdown — the worst it got

Maximum drawdown is the largest peak-to-trough loss a fund has suffered. It measures the pain you would have had to sit through, which is exactly the thing an income investor relying on the fund cannot always afford to do. MSTY’s max drawdown is −77.4%; GPIQ’s is −21.1%. The Calmar ratio folds this into one number — annualized return divided by max drawdown — and GPIQ’s 1.77 versus MSTY’s −0.96 captures the gap in a single figure.

Signal 4: Distribution coverage — is the payout earned or returned?

When a fund pays out more than it earns, the difference comes back as return of capital (ROC) — and ROC lowers your cost basis rather than being taxed today. That is not automatically bad. The test, from Morningstar’s framework, is the NAV: if a fund’s total return is less than its starting NAV plus its distribution and part of that distribution was ROC, the ROC is destructive — a red flag. If the NAV is stable or rising, the ROC is constructive, usually a tax-efficiency artifact.

The same line item can mean opposite things. SPYI pays roughly 93% of its latest distribution as return of capital — yet its NAV has risen 5.8% since inception, so that ROC is constructive (it uses Section 1256 index options for tax efficiency). ULTY also leans on ROC, but against an 85% NAV collapse, so its ROC is destructive. Read the NAV before you judge the ROC.

The disclosure tool is the 19a-1 notice — the written statement a fund must send under SEC Rule 19a-1 when it pays from sources other than net income, breaking the distribution into income, capital gains, and return of capital. The SEC wrote that rule precisely so shareholders “will not believe that a fund portfolio is generating investment income when, in fact, distributions are paid from… shareholder capital.”

Signal 5: AUM trend — the closure you can see coming

Funds do not melt forever; they get shut down. The single best closure-risk flag is assets under management. ETF Database’s rule of thumb is to “scrutinize any fund with less than $50 million in AUM,” and as of March 2026 FactSet counted nearly 1,950 US ETFs — about 38% of the market — below that line. A fund losing assets month after month is a fund whose sponsor is doing the math on whether it is worth keeping open.

YBIT sits at $40.5 million and falling — already under the scrutiny line. When the math loses, you get the YieldMax closure of May 2026: four funds (ABNY, DISO, FEAT, FIVY) announced for liquidation, last trading day June 15, with remaining shares automatically redeemed for cash at NAV on June 18. A liquidation forces a taxable event whether you wanted one or not, and the income simply stops. A shrinking AUM line is your early warning.

The screen, in order

Run a high-yield fund through five gates before the yield ever enters the conversation:

1. Risk-adjusted return — is the Sharpe (and Sortino) clearly positive, and competitive with peers? A negative Sharpe is disqualifying.
2. NAV trajectory — is principal growing, flat, or melting? A multi-year NAV collapse outweighs any payout.
3. Drawdown — could you actually hold through the worst stretch?
4. Distribution coverage — is the payout earned, or is destructive ROC against a falling NAV propping it up? Check the 19a-1 notice.
5. AUM trend — is the fund above scale and stable, or shrinking toward a closure?

Only a fund that clears all five has earned the right to be compared on yield.

Verdict — what to do with the screen

Your situation	What to do	Why	What to watch
Retiree drawing income	Rank holdings by Sharpe + NAV trajectory first; cut negative-Sharpe, melting-NAV funds	A shrinking NAV cuts your future paycheck twice — smaller checks and lost principal	Funds where the distribution rate far exceeds total return
Accumulating in a taxable account	Favor positive-Sharpe funds with constructive ROC; treat 100%+ headline rates as a warning, not a feature	No income need offsets a principal loss; total return is the whole story	Destructive ROC quietly lowering your basis
Accumulating in a sheltered account (IRA/401k)	Same screen; the tax wrapper removes the ROC question but not the durability question	Risk-adjusted return and NAV trajectory still decide the outcome	Sub-$50M AUM and sustained outflows (closure risk)
Holding a very-high-yield single-stock fund	Pull its Sharpe, NAV-since-inception, and AUM trend before adding	These are the funds most likely to fail all five gates at once	A falling AUM line — the closure you can see coming

The headline yield is the last thing to look at, not the first. Rank by durability, and the melting funds sort themselves to the bottom where they belong.

Want the screen run for you? The ETF Reviewer platform already computes Sharpe, Sortino, drawdown, NAV trajectory, distribution coverage, and AUM trend for every fund it tracks — and turns them into a single BUY / WATCH / PASS / AVOID verdict. Check any high-yield holding against the durable-fund screen on its fund page.