Harvest Portfolios has launched the Harvest European Leaders Income ETF (HEUR CN) on the Toronto Stock Exchange, providing exposure to an equally weighted portfolio of European dividend-paying stocks.
Michael Kovacs, CEO at Harvest Portfolios.
“Europe houses some of the most established and innovative business in the world,” said Michael Kovacs, president and chief executive officer, Harvest Portfolios. “It was only logical for Harvest to add an ETF of true business leaders to our lineup of equity income ETFs.”
The fund is actively managed and invests in between 20 to 30 stocks from the European Leaders Investable Universe.
To be eligible for inclusion, constituents must be dividend payers, have a minimum market capitalization of $10 billion, and derive at least one-third of their revenues from within Europe.
The portfolio is rebalanced quarterly back to equal weights and currency exposure is hedged back relative to the Canadian dollar.
As of 5 March 2018, the fund has 25 holdings. France and Germany make up the two largest country exposures with 32% and 28% respectively, followed by Switzerland with 12%. The ETF is notably underweight the UK (compared to traditional market cap-weighted benchmarks) with just an 8% exposure.
The largest sector exposures are to financials (20%), industrials (16%), materials (12%), consumer discretionary (12%) and healthcare (8%).
In an effort to boost monthly distributions to investors, as well as to lower overall portfolio volatility, the fund may write covered call options on up to 33% of the value of the portfolio’s holdings.
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 fund charges management fees of 0.75% per annum.
Harvest Portfolios has been relatively active in the ETF space recently, having launched Canada’s first blockchain ETF just last month. The Harvest Blockchain Technologies ETF (HBLK CN), also listed on Toronto Stock Exchange, is passively managed. The underlying index, created in-house by Harvest Portfolios, comprises equity securities of North American companies that are poised to potentially benefit from the development and implementation of blockchain and distributed ledger technologies. HBLK has management fees of 0.65%.