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:
Holdings
| TICKER | NAME |
| HMAX | Hamilton Canadian Financials Yield Maximizer ETF |
| NXF | CI Energy Giants Covered Call ETF |
| GLCC | Horizons Gold Producer Equity Covered Call ETF |
| HFIN | Hamilton Enhanced Canadian Financials ETF |
| ZWU | BMO Covered Call Utilities ETF |
| HHL | Harvest Healthcare Leaders Income ETF |
| HTA | Harvest 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.
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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%; the MER is 2.39%. 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).
Dividends yield and Price performance
| Inception Date | July 19, 2021 |
| ETF | Div Yield |
|---|---|
| HDIV | 12.21% |
HDIV pays a monthly dividend.
As of January 30th 2024
HDIV ETF review: Dividend distribution
| Amount | Frequency | Ex-Div Date | Record Date | Pay Date | Declare Date |
|---|---|---|---|---|---|
| 0.1410 | Monthly | 1/30/2024 | 1/31/2024 | 2/9/2024 | 1/23/2024 |
| 0.1410 | Monthly | 12/28/2023 | 12/29/2023 | 1/8/2024 | 12/20/2023 |
| 0.1400 | Monthly | 11/29/2023 | 11/30/2023 | 12/7/2023 | 11/23/2023 |
| 0.1400 | Monthly | 10/30/2023 | 10/31/2023 | 11/7/2023 | 10/24/2023 |
| 0.1400 | Monthly | 9/28/2023 | 9/29/2023 | 10/6/2023 | 9/25/2023 |
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
| TICKER | NAME | WEIGHT |
| HMAX | Hamilton Canadian Financials Yield Maximizer ETF | 16.2% |
| NXF | CI Energy Giants Covered Call ETF | 15.4% |
| GLCC | Horizons Gold Producer Equity Covered Call ETF | 15.3% |
| HFIN | Hamilton Enhanced Canadian Financials ETF | 14.6% |
| ZWU | BMO Covered Call Utilities ETF | 13.5% |
| HHL | Harvest Healthcare Leaders Income ETF | 13.0% |
| HTA | Harvest Tech Achievers Growth & Income ETF | 12.2% |
Asset Class
| US Equity | 63.5% |
|---|---|
| CDN Equity | 50.4% |
| Int’l Equity | 13.0% |
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 Market | lags in terms of performance |
| Modest Bull Market | Outperforms the index |
| Volatile market (frequent ups and downs) | Outperforms the index |
| Beat market | Outperforms 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 SA | 8.10 |
| CANADIAN NATURAL RESOURCES LTD | 7.57 |
| SUNCOR ENERGY INC | 7.40 |
| EOG RESOURCES INC | 7.38 |
| EQUINOR ASA | 7.17 |
| CONOCOPHILLIPS | 6.70 |
| BP PLC | 6.58 |
| EXXON MOBIL CORP | 6.43 |
| ENI SPA | 6.39 |
| OCCIDENTAL PETROLEUM CORP | 6.31 |
| CHEVRON CORP | 6.27 |
| PIONEER NATURAL RESOURCES CO | 6.19 |
| TOTAL SE | 6.18 |
| ECOPETROL SA | 5.92 |
| ROYAL DUTCH SHELL PLC | 5.85 |
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.
| Name | Weight | Sector |
|---|---|---|
| NVIDIA Corporation | 6.9% | Semiconductors |
| Advanced Micro Devices, Inc. | 6.5% | Semiconductors |
| QUALCOMM Inc | 6.5% | Semiconductors |
| Intuit Inc. | 5.5% | Software |
| Apple Inc. | 5.3% | Technology Hardware |
| Applied Materials | 5.2% | Semiconductors |
| Keysight Technologies | 5.2% | Electronic Equipment |
| Broadcom Inc. | 5.1% | Semiconductors |
| Microsoft Corp | 5.1% | Software |
| Adobe Inc. | 5.0% | Software |
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
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 Name | Weight |
|---|---|
| YAMANA GOLD INC | 9.14% |
| ROYAL GOLD INC | 8.56% |
| AGNICO EAGLE MINES LTD | 8.20% |
| NEWMONT CORP | 7.95% |
| B2GOLD CORP | 7.84% |
| BARRICK GOLD CORP | 7.82% |
| PAN AMERICAN SILVER CORP | 7.53% |
| FRANCO-NEVADA CORP | 7.52% |
| WHEATON PRECIOUS METALS CORP | 7.49% |
| OSISKO GOLD ROYALTIES LTD | 7.25% |
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
| Name | Weight |
|---|---|
| Merck & Co., Inc. | 5.3% |
| Thermo Fisher Scientific Inc. | 5.3% |
| AstraZeneca PLC | 5.1% |
| Eli Lilly and Company | 5.1% |
| Agilent Technologies, Inc. | 5.0% |
| Anthem, Inc. | 5.0% |
| Bristol-Myers Squibb Company | 5.0% |
| HCA Healthcare, Inc. | 5.0% |
| Novartis AG | 5.0% |
| Pfizer Inc. | 5.0% |
