Perhaps it’s the result of the 2022-23 interest hikes, the still lingering inflation that caused those moves by the Federal Reserve, more clients demanding more than Treasuries for fixed income exposure or all the above, but the point is advisors are responding to an evolving income environment.

The 2025 Nasdaq Income Allocation Survey confirms as much. One of the interesting takeaways is that, broadly speaking, advisors haven’t significantly altered portfolios’ percentages allocated to income-generating instruments, but they have shifted to different strategies. Interestingly, the more than 400 advisors polled by Nasdaq said the average fixed income allocation in portfolios they manage is 29% -- in-line with the 2023 version of the study and well below the 40% in the 60/40 mix advisors used to heavily rely on.

For advisors that want to know what their colleagues and competitors are up to and how they’re approaching income investments, Nasdaq points out that while 42% still view income from the total return perspective, nearly a third view income investments as paycheck replacement tools. That makes sense because clients are living longer and many simply don’t want to materially downgrade their lifestyles simply because they’re retired.

Income Demand Spells Opportunity for ETFs

Jillian DelSignore, Global Head of Investor Distribution Strategy at Nasdaq Global Indexes, points that there’s an “insatiable appetite for yield” and it’s being driven by market participants ranging from retirees to those that simply want buffering and stability in their portfolios.

Regardless of an investor’s motivations for increasing income, it’s clear that demand is creating massive opportunity for the exchange traded funds industry – all the more relevant at a time when more actively managed bond ETFs are coming to market. Advisors are also embracing passive ETFs to supply clients with more income with their allocations to such products jumping 11% since 2023.

“That shift of 11% in passive ETFs is massive because it shows that you have this continued evolution of new users of income ETFs, which, while they've been around for a long time, is a significant new migration, which for me is very encouraging,” said DelSignore. “But then, at the same time, you also have this meaningful increase in active mutual funds, which is interesting because that says advisors are simultaneously really seeking active strategies in fixed income. ”

In more good news for the fund industry, the Nasdaq survey indicates advisors are attentive to what wholesalers have to say. That’s doesn’t mean advisors take wholesalers’ advice as gospel with every conversation, but 37% rely on those recommendations, up from 26% two years ago.

Don’t Forget This Income Segment

As Nasdaq points out, 44% of advisors polled are concerned about how inflation will affect portfolios over the next 12 months and a third feel the same way about interest rates and equity market volatility. Any and all of those issues could put the spotlight on covered call funds, particularly in the ETF wrapper.

For the sake of this conversation, put the emphasis on covered call funds with more subdued yields that don’t subject clients to significant net asset value (NAV) erosion. Yes, plenty of ETFs in the latter camp feature massive yields, but they’re not suitable for all investors and their complexities and NAV declines are off-putting to many.

Still, covered call funds in older, more conservative form have merit for some clients, particularly at a time when Treasury yields are poised to fall and if clients are looking for some downside protection.

“Advisors are telling us they are concerned about inflation, market volatility, and interest rate changes, and an options-based strategy benefits from all three of those,” said Edward Ware, Nasdaq’s Head of Index Specialists Americas. “The environment that advisors see themselves in should dictate their planning, and their planning should dictate what solutions they're using — but it doesn't seem like they're adopting these new tools as quickly as one would expect. ”