hdiv etf review

HDIV ETF review: Hamilton Enhanced Multi-Sector Covered Call

This an HDIV ETF review. We will be discussing the funds’ strategy, performance and histrorical dividend distribution.

Fund Objective

HDIV is a passive covered call ETF. It’s ideal for investors who seek high dividend income and low volatility. HDIV invests in a basket of 7 covered call & sector focus ETFs. The fund manager uses also cash leverage of 25% to enhance yield and growth potential. The index tracked is The Solactive Multi-Sector Covered Call ETFs Index TR x 1.25.

The ETFs held within HDIV invest primarly in large corporations. In addition to using the covered call strategy, the funds ensure diversification of your investments across various sectors. See below the list of the 7 ETFs that make up HDIV:

NXFCI Energy Giants Covered Call ETF
ZWBBMO Covered Call Canadian Banks ETF
GLCCHorizons Gold Producer Equity Covered Call ETF
HFINHamilton Enhanced Canadian Financials ETF
ZWUBMO Covered Call Utilities ETF
HHLHarvest Healthcare Leaders Income ETF
HTAHarvest Tech Achievers Growth & Income ETF

All the funds that make up HDIV are covered call ETFs offered by various issuers such as: Harverst, BMO, CI Financial and Horizons.

This post is available in video format on our Youtube Channel.

How profitable are covered call ETFs?

Covered call ETF became widely popular because of the high dividend yield they offer. Fund managers market their product as a high yield / low volatility alternative to direct exposure to popular market indexes such as NASDAQ or S&P 500 or highly volatile sectors such as Gold or Oil. While these claims can be considered accurate to a certain extent, one needs to realize that the covered call strategy have also a major drawback:

  • Substantially lower performance than the tracked index in bull markets. Investors who are looking for high growth will be disappointed by the covered call strategy.

In our opinion, HDIV can serve various type of investors:

– A tactical play during market corrections for growth investors;

– A mean of earning income for conservative investors

Can you lose money on a Covered Call ETF?

The short answer is yes. Covered call ETFs are volatile and the returns depend greatly on the performance of the underlying asset. Even if you receive generous dividends, a low price performance of the ETF can wipe out all the benefits. It’s preferable to hold these type of ETFs for the long term.

HDIV MER

The expense ratio is 0.65%. Since this fund has less than one year of existence, the MER is not yet published. The MER is the Management Expense Ratio or the total expenses charged by the fund.

How writing a call option works?

Options make it possible to hedge a possible decline in a security and thus limit its loss through a gain on the option. To apply this hedging strategy, you have to take a short position on a call option, in other words sell a call.

The sale of calls achieves two objectives:

· Set the sale price of these securities (exercise price) and therefore set an acceptable loss.

· Collect a premium, i.e. additional income, or limit losses if the strike price is reached.

The option seller will be obligated to deliver the securities if exercised at the price fixed in advance. In this case the market will have evolved contrary to these expectations, it will have appreciated. The option investor will sell his securities for less than the market price.

Covered call options protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. Covered call ETFs will tend to have a higher yield and a lower performance (in bull makets).

HDIV Dividends yield and Price performance

Inception DateJuly 19, 2021

ETF Div
Yield
 HDIV10.56%
As of September 30th – issuers’ website – HDIV ETF review

HDIV pays a monthly dividend. As of January 4th, the dividend yield was 9.05%.

ETF 1M
%Chg
3M
%Chg
YTD
%Chg
 HDIV-4.8111.79-2.02
As of January 4th 2023 Yahoo finance – HDIV ETF review

HDIV ETF review: Dividend distribution

EX-DIV
DATE
PAIDAMNT
2022-06-292022-07-13$0.1250
2022-05-302022-06-10$0.1250
2022-04-282022-05-11$0.1250
2022-03-302022-04-12$0.1250
2022-02-252022-03-10$0.1250
2022-01-282022-02-10$0.1175
2021-12-302022-01-13$0.06438
2021-12-302022-01-13$0.1175
2021-11-292021-12-10$0.1175
2021-10-282021-11-10$0.1175
2021-09-282021-10-13$0.1175
2021-08-302021-09-13$0.1175

Sector allocation

█  Financials 30.0%
█  Utilities 14.0%
█  Health Care 13.6%
█  Technology 10.6%
█  Gold 14.8%
█  Energy 17.1%

HDIV ETF review: Portfolio

NXFCI Energy Giants Covered Call ETF17.1%
ZWBBMO Covered Call Canadian Banks ETF15.5%
GLCCHorizons Gold Producer Equity Covered Call ETF14.8%
HFINHamilton Enhanced Canadian Financials ETF14.4%
ZWUBMO Covered Call Utilities ETF14.0%
HHLHarvest Healthcare Leaders Income ETF13.6%
HTAHarvest Tech Achievers Growth & Income ETF10.6%
Please visit issuers’ website for most up-to-date data

Asset Class

US Equity63.5%
CDN Equity50.4%
Int’l Equity13.0%
Please visit issuers’ website for most up-to-date data

Video

Expected investment outcome with covered call ETFs

In a robust bull market, where the price of the underlying stock rises above the strike price plus the option premium, the covered call writer will underperform.

Due to earning the option premium, the covered call writer can normally anticipate to outperform merely holding the stock in flat, decreasing, and mildly rising markets.

 Covered call strategy
Bull Marketlags in terms of
performance
Modest Bull MarketOutperforms the index
Volatile market
(frequent ups and downs)
Outperforms the index
Beat marketOutperforms the index

Descriptions of funds that make up HDIV

NXF CI First Asset Energy Giants ETF Unhedged and NXF-B CI First Asset Energy Giants Cov Call ETF

NXF is an actively managed ETF and it invests in the 15 largest energy companies listed in North American stock exchange. The Fund’s investment objective is to provide :

  • quarterly cash distributions;
  • capital appreciation by investing on an equal weight basis in a portfolio of equity securities of at least the 15 largest energy companies measured by market capitalization;
  • lower volatility of returns;
  • liquidity of the issuers’ equity securities and their related call options.

NXF is a currency hedged ETF. Whereas, NXF-B is not hedged against currency risk.

Name%
PETROLEO BRASILEIRO SA8.10
CANADIAN NATURAL RESOURCES LTD7.57
SUNCOR ENERGY INC7.40
EOG RESOURCES INC7.38
EQUINOR ASA7.17
CONOCOPHILLIPS6.70
BP PLC6.58
EXXON MOBIL CORP6.43
ENI SPA6.39
OCCIDENTAL PETROLEUM CORP6.31
CHEVRON CORP6.27
PIONEER NATURAL RESOURCES CO6.19
TOTAL SE6.18
ECOPETROL SA5.92
ROYAL DUTCH SHELL PLC5.85

Please consult issuers’ website for up-to-date data

HTA -Harvest Tech Achievers Growth & Income 

HTA is an ETF that invests in an equally weighted portfolio of 20 large-cap technology companies (globally). In order to generate an enhanced monthly distribution yield, an active covered call strategy is engaged.

Covered call strategies are great as they generate additional income for investors (in the form of premiums). The strategy is somewhat conservative and aims at preserving the capital invested primarily. On the other hand, the strategy limits potential growth.

NameWeightSector
NVIDIA Corporation6.9%Semiconductors
Advanced Micro
Devices, Inc.
6.5%Semiconductors
QUALCOMM Inc6.5%Semiconductors
Intuit Inc.5.5%Software
Apple Inc.5.3%Technology Hardware
Applied Materials5.2%Semiconductors
Keysight Technologies5.2%Electronic Equipment
Broadcom Inc.5.1%Semiconductors
Microsoft Corp5.1%Software
Adobe Inc.5.0%Software
Please consult issuers’ website for up-to-date data

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

NameWeight
BMO Equal Weight Banks ETF27.2%
  Bank of Montreal12.9%
Canadian Imperial Bank of Commerce12.7%
Royal Bank of Canada12.1%
National Bank of Canada11.9%
  The Toronto-Dominion Bank11.9%
Bank of Nova Scotia11.4%

Please visit issuers’ website for up-to-date figures

HEP – Horizons Enhanced Income Gold Producers

HEP invests in an equal weighted portfolio of North American listed gold mining and exploration companies. The fund manager uses a covered call strategy to lower volaility and enhance yield.

Here’s some additional info on HEP:

  • Monthly dividend distribution
  • The portfolio manager selects only large issuers with liquid stocks
  • A currency hedge strategy is in place to lower curency risk

HEP HOLDINGS

Security NameWeight
YAMANA GOLD INC9.14%
ROYAL GOLD INC8.56%
AGNICO EAGLE MINES LTD8.20%
NEWMONT CORP7.95%
B2GOLD CORP7.84%
BARRICK GOLD CORP7.82%
PAN AMERICAN SILVER CORP7.53%
FRANCO-NEVADA CORP7.52%
WHEATON PRECIOUS METALS CORP7.49%
OSISKO GOLD ROYALTIES LTD7.25%

By country

  • Canada (69.19%)
  • United States (16.57%)
  • United Kingdom (7.12%)
  • South Africa (7.12%)

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

HHL – Harvest Healthcare Leaders Income

HHL is a covered call ETF from Harvest. The manager invests in large-cap US healthcare companies (active strategy). This fund is designed for investors who are seeking income and moderate growth.

HHL Holdings

NameWeight
Merck & Co., Inc.5.3%
Thermo Fisher Scientific Inc.5.3%
AstraZeneca PLC5.1%
Eli Lilly and Company5.1%
Agilent Technologies, Inc.5.0%
Anthem, Inc.5.0%
Bristol-Myers Squibb Company5.0%
HCA Healthcare, Inc.5.0%
Novartis AG5.0%
Pfizer Inc.5.0%

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