Evolve Funds Group has launched a new ETF in Canada offering investors access to the global mining sector while seeking to enhance income through the use of option strategy overlays.
Elliot Johnson, CIO and COO at Evolve ETFs.
The Evolve Global Materials & Mining Enhanced Yield Index ETF has been listed on the Toronto Stock Exchange and comes with a management fee of 0.60%.
The foundation of the fund is the Solactive Materials & Mining Index which consists of developed market companies that have market capitalizations greater than CAD$5 billion and average daily trading values over the past three months of at least CAD$2 million.
Index provider Solactive uses the FactSet Revere Business Industry Classification System (RBICS) to identify companies with operations within relevant sub-industries. These include mineral and metal mining companies, companies involved in the mining and processing of coal and uranium, and companies producing a diverse set of specialty and performance chemicals.
The 20 largest companies fulfilling these criteria are selected to form the final index. Constituents are equally weighted, and the index is rebalanced quarterly. Stocks from the US and Canada currently account for roughly a third of the total index weight each, with the next largest country exposure being the UK at 10.9%.
On top of tracking this index, the fund’s managers engage in discretionary covered call option strategies on up to a third of the portfolio securities in a bid to enhance income and reduce portfolio volatility. The level of covered call option writing may vary based on market volatility.
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 additional income – from the 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 typically outperformed versus its underlying portfolio. However, during strong bull markets, when the underlying securities may frequently rise above their strike prices, covered call strategies historically have tended to lag.
The ETF trades in Canadian dollars and is available in currency-hedged (BASE CN) and unhedged (BASE.B CN) share classes.
“We are excited to be launching BASE at a time when emerging markets are anticipated to impact overall global growth,” said Elliot Johnson, CIO, and COO at Evolve ETFs. “The materials industry is often cyclical and we think it’s time for Canadian investors to take another look at the sector.”