BMO Asset Management has rolled out three ETFs on Toronto Stock Exchange, providing investors with new income solutions focused on the Canadian and US equity markets. The strategies include enacting a covered call strategy on Canadian high dividend equities, writing put options on US large cap equities, and investing in the US preferred share market.
The strategies behind the newly launched ETFs include enacting a covered call strategy on Canadian high dividend equities, writing put options on US large cap equities, and investing in the US preferred share market.
“These new offerings enable us to build on the success of our existing suite of ETFs and provide investors more choice when structuring their portfolios,” said Kevin Gopaul, Head, BMO Global Asset Management Canada, Global Head of ETFs and Chief Investment Officer, BMO Asset Management. “With one of the broadest and fastest-growing ETF suites among Canadian providers, these new funds further solidify our position as a market-leader in smart beta and solutions-based ETFs.”
The BMO Canadian High Dividend Covered-Call ETF (ZWC) invests in Canadian securities with high dividend yields while obtaining an additional income through a covered call strategy overlay.
The ETF screens securities for dividend growth, sustainability and option liquidity, while weighting its constituents by dividend yield to further boost the income potential of the fund.
A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.
Historically, during bear markets, range-bound markets and modest bull markets, this type of covered call strategy has generally outperformed its underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.
The ETF has management fees of 0.65%.
The fund complements BMO’s existing range of covered call strategy ETFs which includes targeted exposure to Canadian banking firms, utility companies, broad US equities, US high dividend payers and European high dividend payers. The other funds in the suite include:
BMO Covered Call Canadian Banks ETF (ZWB)
BMO Covered Call Utilities ETF (ZWU)
BMO Covered Call Dow Jones Industrial Average Hedged to CAD ETF (ZWA)
BMO US High Dividend Covered Call ETF (ZWH)
BMO US High Dividend Covered Call ETF (US Dollar Units) (ZWH-U)
BMO Europe High Dividend Covered Call Hedged to CAD ETF (ZWE)
The BMO US Put Write Hedged to Canada ETF (ZPH) provides investors with exposure to a portfolio of put options on US large cap equities. The ETF seeks to generate income through the premiums on the written put options, and further capturing a yield return by investing the premiums in cash equivalents.
While the ETF seeks to lower risk by limiting the options being written to short-dated out-of-the-money options, the ETF may suffer a loss if the value of the underlying equities declines significantly over the term of the options’ lives.
This ETF is now available in unhedged, hedged (Ticker: ZPH) and USD (Ticker: ZPW-U) to allow investors to choose their currency exposure.
The fund’s management fees are 0.65%.
The BMO US Preferred Share Index ETF (ZUP) tracks the Solactive US Preferred Share Select Index, providing investors exposure to the US preferred-share market with a smart-beta dividend yield screen.
Preferred shares have both equity- and bond-like characteristics, falling between company debt and common stock in the seniority of the firm’s capital structure. They generally pay a regular fixed or floating dividend, making the security’s price sensitive to changes in interest rates.
While the equity-like nature of the security characterises it as a perpetual investment, most preferred shares do have an embedded callable feature, exercisable after a specified time period. This tends to lead to a cap on the potential appreciation of the security’s price.
This ETF is now available in unhedged, hedged (Ticker: ZHP) and USD (Ticker: ZUP-U) to allow investors to choose their currency exposure.
The fund’s management fees are 0.45%.