Review HYLD: Hamilton Enhanced U.S. Covered Call ETF

Investment objective

HYLD is a passive index ETF that uses a covered call strategy to enhance yield. It seeks to replicate a 1.25 times multiple of the Solactive U.S. Covered Call ETFs Index TR (SOLUSCCT), comprised of equal weightings of 7 higher-yielding U.S.-focused covered call ETFs.

The fund is available for purchase in CAD-Hedged (HYLD) and USD-Unhedged (HYLD.U). The main idea behind HYLD ETF is to offer investors a higher yielding alternative to the S&P 500 with similar volatility (as per Hamilton’s website). It’s important to note we are talking here about ‘higher yielding’ alternative and not similar or higher performance that the S&P 500.

Covered call ETF usually 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 that the portfolio they track.

Hamilton’s website: These returns shown above are net of all fees and expenses related to the underlying funds, but before any management fees related to HYLD

Why covered call ETFs are popular?

Covered call ETFs are very popular with Canadian investors. Some of these ETFs managers have billions of dollars under management. 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.

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; Maturity: April; Option price: $ 4; Quantity: 100

He collects the following amount: 4 x 100 or 400 $ (premium)

Two cases should be distinguished:


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).


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.

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MER and AUM: HYLD vs ZWH and ZWK

In the table below, we will compare HYLD with 2 strong competitors ZWH BMO US High Dividend Covered Call and ZWK ZWK -BMO Covered Call US Banks. Both ZWH and ZWK write call options to enhance yield and they are both invested in US markets.

Name-TickerAUM Manag
HYLD – Hamilton Enhanced
U.S. Covered Call ETF
Dividend Covered Call
ZWK -BMO Covered
Call US Banks 

Source: Barchart

All three ETFs have similar MER. However, I believe that HYLD is more expensive considering it’s ‘an index’ ETF, while ZWK and ZWH from BMO are actively managed.

Performance: HYLD vs ZWH and ZWK


Source: Yahoo Finance/ Dividend yield as of January 4th 2023; *Forward dividend yield as per issuers’ website December 30th

ZWH and ZWK had a better historical performance than HYLD.

HYLD has a much higher dividend yield.

HYLD Monthly Dividend distribution


HYLD ETF Holdings

HEPHorizons Enhanced Income Gold Producers ETF16.0%
HHLHarvest Healthcare Leaders Income ETF15.6%
XYLDGlobal X S&P 500 Covered Call ETF14.4%
HBFHarvest Brand Leaders Plus Income ETF14.3%
RYLDGlobal X Russell 2000 Covered Call ETF14.1%
QYLDGlobal X NASDAQ 100 Covered Call ETF13.5%
TXFCI Tech Giants Covered Call ETF12.3%

HYLD stock: Sector Allocation

█ Technology 26.8%
█  Consumer 30.9%
█  Communications 11.5%
█  Financial 8.0%
█  Industrial 5.4%
█  Energy 1.6%
█  Basic Materials 14.9%
█  Utilities 0.9%

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