Investment Objective of FMAX
FMAX, the Hamilton U.S. Financials Yield Maximizer ETF, aims to generate income by investing in a diversified portfolio of U.S. financial services companies. It combines the potential for capital appreciation with an active covered call strategy to enhance yield and mitigate volatility, making it a compelling option for income-seeking investors. Here’s a full FMAX ETF review.
Strategic Approach to Yield and Volatility
FMAX’s approach involves writing covered call options on its holdings. This method is designed to capture premium income which can increase the fund’s yield. By writing at-the-money options, FMAX targets higher cash premiums compared to out-of-the-money options. However, the strategy is applied to only approximately 30% of the portfolio’s holdings. This allows the remaining 70% of the portfolio the opportunity to appreciate in value, striving for a balance between income and growth.
Benefits of Covered Call Strategies
Covered call strategies, like the one used by FMAX, are popular for their ability to generate income and provide a buffer against minor price declines in the underlying securities. The income from selling call options can offer a cushion during market dips, as the premium income can offset some capital losses.
Risk Considerations
Investing in FMAX involves several risks. Options strategies can limit upside potential since the sold calls cap the growth of the underlying stock at the strike price. In a surging market, this could mean missing out on significant gains. Additionally, the ETF’s focus on the financial sector means that it may be more vulnerable to industry-specific risks, including regulatory changes and economic cycles that disproportionately affect financial companies.
The Role of FMAX in a Portfolio
For investors looking for monthly income and a moderate level of risk, FMAX might be a fitting addition to a diversified portfolio. Its strategy offers a different risk-return profile than owning the stocks outright, potentially making it suitable for those with an intermediate risk tolerance.
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Tax Efficiency
Investors in FMAX can benefit from its tax-efficient distribution strategy. This is particularly advantageous within an RRSP, where the 15% withholding tax on U.S. dividends does not apply. Holding FMAX in an RRSP can enhance the tax efficiency of the income generated, making it an attractive option for investors seeking to maximize their after-tax returns. This strategic placement within registered accounts can make a significant difference in the long-term growth of an investment portfolio.
No Leverage Utilized
FMAX does not use leverage, which can often amplify losses. By avoiding leverage, the ETF seeks to provide a more stable investment experience.
Accessibility and Flexibility
All Hamilton ETFs, including FMAX, are available for purchase on the Toronto Stock Exchange (TSX). They can be included in various registered accounts like RRSPs and TFSAs, which can offer additional tax benefits.
Setting Up a DRIP
Investors interested in reinvesting their dividends can set up a Dividend Reinvestment Plan (DRIP) by contacting their brokerage. This can compound returns by automatically reinvesting income into additional shares of the ETF.
FMAX Holdings
| TICKER | NAME | WEIGHT |
| BRK/B | Berkshire Hathaway Inc | 5.0% |
| V | Visa Inc | 5.0% |
| JPM | JPMorgan Chase & Co | 5.0% |
| MA | Mastercard Inc | 5.0% |
| BAC | Bank of America Corp | 5.0% |
| WFC | Wells Fargo & Co | 5.0% |
| BX | Blackstone Inc | 5.0% |
| MS | Morgan Stanley | 5.0% |
| SPGI | S&P Global Inc | 5.0% |
| AXP | American Express Co | 5.0% |
| GS | Goldman Sachs Group Inc/The | 5.0% |
| BLK | BlackRock Inc | 5.0% |
| SCHW | Charles Schwab Corp/The | 5.0% |
| PGR | Progressive Corp/The | 5.0% |
| C | Citigroup Inc | 5.0% |
| CB | Chubb Ltd | 5.0% |
| MMC | Marsh & McLennan Cos Inc | 5.0% |
| FI | Fiserv Inc | 5.0% |
| CME | CME Group Inc | 5.0% |
| ICE | Intercontinental Exchange Inc | 5.0% |
Final Thoughts FMAX ETF review
In conclusion, FMAX represents a nuanced investment product that combines exposure to U.S. financials with an options overlay strategy to enhance yield and manage risk. While it offers several potential benefits, including monthly income and reduced volatility, investors must also consider the associated risks and the possibility of capped upside potential. As with any investment, it’s crucial to align with your financial objectives and risk tolerance. Before making investment decisions, reviewing the latest information on the Hamilton ETFs website and consulting with a financial advisor is advised.
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