In this post, we will be sharing BMO Covered call ETF list. We will be comparing 6 of the most popular ETFs in terms of dividends, MER and historical performance. Covered call ETFs are very popular with Canadian investors. Two reasons push investors towards covered call ETFs:
High dividend yield: thanks to the premiums earned when writing call options, the manager under certain conditions can earn premiums and enhance distributions;
Low volatility. Writing a call option is a conservative strategy aimed at reducing volatility;
Great for passive income: if you’re main objective is to achieve high dividend yields and build passive income, then covered call ETFs are a good option. But, remember the high dividend yield comes at a price which very low growth potential.
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Executive summary
| ETF | Objective | Risk/Return Profile |
|---|---|---|
| ZWB | Exposure to Canadian banking sector | Lower potential returns, downside protection, income generation |
| ZWC | Broad-based exposure to Canadian stock market | Moderate potential returns, downside protection, income generation |
| ZWH | Exposure to US equities with high dividend yields | Moderate to higher risk due to US stocks, downside protection, income generation |
| ZWP | Exposure to European equities with high dividend yields | Moderate potential returns, downside protection, income generation |
| ZWK | Exposure to a portfolio of U.S. banks | Moderate potential returns, downside protection, income generation |
| ZWU | Exposure to global real estate investment trusts | Moderate to higher risk due to US stocks, downside protection, income generation |
BMO Covered call ETF list
| Name | AUM* | MER |
| ZWB –BMO Covered Call Canadian Banks | 2.6B | 0.72 |
| ZWC –BMO CDN High Div Covered Call | 1.3B | 0.72 |
| ZWP –BMO Europe High Div Cov Call | 935M | 0.71 |
| ZWH –BMO US High Dividend Covered Call | 918M | 0.71 |
| ZWK -BMO Covered Call US Banks | 230M | 0.71 |
| ZWU – BMO Covered Call Utilities | 1,6B | 0.71 |
Source: TD Market research, MER: Management Expense Ratio / BMO Covered call ETF list
Performance and dividend yield comparison
Average long term performance – Updated daily – Best Covered Call ETF Canada
Dividend yield comparison
| Div Yld | |
| ZWB | 7.14 |
| ZWC | 7.15 |
| ZWP | 8.05 |
| ZWH | 6.64 |
| ZWK | 8.04 |
| ZWU | 8.45 |
Source: Yahoo Finance
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ZWB – BMO Covered Call Canadian Banks
The ZWB aims to provide exposure to a portfolio of dividend-paying securities (Canadian Banks), while collecting premiums related to call options. The portfolio is chosen on the basis of the criteria below:
• dividend growth rate, yield and payout ratio and liquidity.
ZWB holdings
| Name | Weight |
| BMO Equal Weight Banks ETF | 27.2% |
| Bank of Montreal | 12.9% |
| Canadian Imperial Bank of Commerce | 12.7% |
| Royal Bank of Canada | 12.1% |
| National Bank of Canada | 11.9% |
| The Toronto-Dominion Bank | 11.9% |
| Bank of Nova Scotia | 11.4% |
Please visit issuers’ website for up-to-date figures – BMO Covered call ETF list
ZWC –BMO CDN High Div Covered Call
The BMO Canadian High Dividend Covered Call ETF (ZWC) has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors.
The fund selection methodology uses 4 factors: – Liquidity; – Dividend growth rate; – Yield and payout ratio.
ZWC is an excellent option for conservative investors looking for a steady income and low volatility. It’s tax-efficient because the dividends are all coming from Canadian companies. The financial sector and Energy represents 53% of the total overall sector allocation.
ZWC ETF Holdings
| Company Name | Allocation |
|---|---|
| Canadian National Railway Co | 5.4% |
| BCE Inc | 5.2% |
| TELUS Corp | 5.1% |
| Enbridge Inc | 5.0% |
| Royal Bank of Canada | 5.0% |
| Canadian Imperial Bank of Commerce | 4.9% |
| Bank of Nova Scotia | 4.7% |
| The Toronto-Dominion Bank | 4.6% |
| Manulife Financial Corp | 4.3% |
Please visit issuers’ website for up-to-date figures
ZWP – BMO Europe High Dividend Covered Call ETF
The BMO Europe High Dividend Covered Call ETF (ZWP) has been designed to provide exposure to a dividend focused portfolio. These dividend paying companies are selected based on:
- dividend growth rate,
- yield,
- payout ratio and liquidity.
ZWP Dividend ETF Holdings
| Company Name | Allocation |
|---|---|
| Roche Holding AG | 4.0% |
| Nestle SA | 4.0% |
| Novartis AG | 4.0% |
| GlaxoSmithKline PLC | 4.0% |
| Sanofi SA | 3.8% |
| TotalEnergies SE | 3.7% |
| Unilever PLC | 3.7% |
| Enel SpA | 3.7% |
Please visit issuers’ website for up-to-date figures
Geographic allocation
| Countries | Weight |
| Switzerland | 23.66% |
| Germany | 24.24% |
| United Kingdom | 18.76% |
| France | 16.72% |
| Other (multiple countries) | 16.62% |
Please visit issuers’ website for up-to-date figures
Sector allocation
| Type | Fund |
| Information Technology | 6.22 |
| Industrials | 12.18 |
| Consumer Discretionary | 11.56 |
| Consumer Staples | 11.78 |
| Health Care | 16.56 |
| Financials | 14.79 |
| Materials | 9.48 |
| Communication | 8.10 |
| Energy | 3.89 |
| Utilities | 3.66 |
Please visit issuers’ website for up-to-date figures
ZWH – BMO US High Dividend Covered Call ETF
ZWH has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors. The Fund utilizes a rules-based methodology that considers the following criteria:
dividend growth rate,
yield,
payout ratio,
liquidity.
ZWH Dividend ETF Holding
| Company Name | Allocation |
|---|---|
| Apple Inc | 4.2% |
| Microsoft Corp | 4.2% |
| Coca-Cola Co | 4.1% |
| AbbVie Inc | 4.1% |
| The Home Depot Inc | 4.1% |
| Procter & Gamble Co | 4.1% |
| Pfizer Inc | 4.0% |
Please visit issuers’ website for up-to-date figures
Geographic allocation
| Country | Fund |
| USA | 100.0% |
Please visit issuers’ website for up-to-date figures
Sector allocation
| Sector | Fund |
| Information Technology | 22.61% |
| Industrials | 8.39% |
| Consumer Discretionary | 10.06% |
| Health Care | 12.40% |
| Financials | 15.50% |
| Materials | 4.36% |
| Communication | 9.58% |
| Consumer Staples | 7.35% |
| Energy | 3.86% |
| Utilities | 3.84% |
| Real estate | 2.05% |
Please consult issuers’ website for up-to-date figures
ZWK -BMO Covered Call US Banks
The BMO Covered Call U.S. Banks ETF (ZWK) is professionally managed by BMO Global Asset Management. The fund has been designed to provide exposure to a portfolio of U.S. banks while earning call option premiums.
The fund invests in 38 US Banks. It’s ideal for investors looking for dividend income. The dividend yield on November 24th was 6.19%!
The fact that the fund uses call options accomplishes two things:
- increases the dividend yield;
- reduces volatility but also growth potential. So, it’s something to keep in mind.
| Weight (%) | Name |
|---|---|
| 5.86% | SIGNATURE BANK/NEW YORK NY |
| 5.58% | CITIZENS FINANCIAL GROUP INC |
| 5.55% | REGIONS FINANCIAL CORP |
| 5.52% | AMERIPRISE FINANCIAL INC |
| 5.52% | M&T BANK CORP |
| 5.46% | SVB FINANCIAL GROUP |
| 5.43% | KEYCORP |
| 5.41% | TRUIST FINANCIAL CORP |
| 5.40% | FIFTH THIRD BANCORP |
| 5.38% | BMO EQUAL WEIGHT US BANKS INDEX ETF |
ZWU – BMO Covered Call Utilities
ZWU is another covered call ETF from BMO. It provides exposure to an equal weight portfolio of utilities, telecoms and pipeline companies. The fund manager will enhance yield by issuing options and collectin
ZWU Holdings
| Weight (%) | Name |
|---|---|
| 5.92% | BMO EQUAL WEIGHT UTILITIES INDEX |
| 5.44% | PEMBINA PIPELINE |
| 5.29% | TC ENERGY |
| 5.16% | FORTIS INC/CANADA |
| 5.02% | ENBRIDGE |
| 4.87% | BCE |
| 4.70% | TELUS |
| 4.59% | PPL |
| 4.52% | EXELON |
| 4.46% | ROGERS COMMUNICATIONS |
Practice example: covered call strategy
An investor has 100 shares of Company A in his portfolio. Company A’s share is worth $ 30. He anticipates a stagnation or a slight drop in its price and he is ready to sell them at the price of 26 $. He decides to sell a call with the following characteristics:
• Exercise price: $ 26 and Maturity: April
• Option price: $ 4 and Quantity: 100
He collects the following amount: 4 x 100 or 400 $ (premium)
Two cases should be distinguished:
CASE 1: Company A’s share price rose above the breakeven point of $ 30.
Break-even point = exercise price + premium = 26 + 4 = 30
The buyer of the option will choose to exercise his right to buy and, as the seller of the call, the seller will have to sell the shares at the strike price.
During this operation:
- the seller sold his shares for $ 26, which constitutes an acceptable loss for him.
- the seller collected the amount of the premium of $ 4, which helped boost the performance of his investments (yield).
CASE 2: Company A’s share price has fallen below the breakeven point of $ 30.
The buyer of the option will choose not to exercise his right to buy and the seller will not have to sell his shares.
Thanks to this operation, the seller keeps his shares in the portfolio and he collected the amount of the premium which generated an additional return.