Toronto-based Purpose Investments has launched the actively managed Purpose Enhanced Dividend Fund (PDIV CN), combining a portfolio of high-quality North American dividend-paying equities with a tactical covered-call option overlay.

The Purpose Enhanced Dividend Fund (PDIV CN) combines a portfolio of North American dividend-paying equities with a tactical covered-call option overlay.

The fund has been listed on the Toronto Stock Exchange.

“Investors recognize the crucial role dividends can play in their portfolios,” said Som Seif, president and chief executive officer of Purpose Investments. “However, in a world of lofty valuations and flat to rising interest rates, strategies that seek to enhance income and lower volatility can be a meaningful way to help manage risk.”

The ETF will invest in 40 dividend-paying equities listed in North America which the fund’s managers have screened for quality and dividend sustainability. They will also employ a covered-call option strategy on up to 25% of portfolio to generate enhanced income and lower risk.

Covered-call strategies involve selling call options on stocks already owned in the portfolio. The premiums paid for the call options provide the investor with a regular income stream but the investor also limits his potential for upside gains due to the loss on the short call position when the stock’s price rises above the call’s strike price.

PDIV has a management fee of 0.65%.

Purpose Investments’ suite of dividend ETFs includes the Purpose Core Dividend Fund (PDF CN) which is the same as PDIV but without the covered-call overlay. It has over $500 million in assets under management and charges annual management fees of 0.55%. Also available are the Purpose US Dividend Fund (PUD CN) and the Purpose International Dividend Fund (PID CN) which utilize the same dividend strategy, targeting US and international (ex-US, ex-Canada) equities respectively. Covered-call overlays are not available on these strategies.