The BMO Covered Call Utilities ETF is an investment fund that aims to provide investors with exposure to a diversified portfolio of Canadian utility companies. The ETF aims to achieve two main goals:
- Provide investors with regular income payments every month, similar to receiving rent from a property you own.
- Provide investors with the opportunity to grow their investment over time through capital appreciation, which means that the value of their investment can potentially increase.
To achieve these goals, the ETF invests primarily in Canadian utility companies, which are companies that provide essential services like electricity, water, and gas. Additionally, the ETF uses a strategy called “covered call,” which involves selling options on some of the stocks in its portfolio to generate extra income.
What’s a covered call ETF?
What’s unique about this ETF is that it uses covered calls to 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. These ETFs will tend to have a higher yield and a lower performance.
ZWU is an excellent option for conservative investors looking for a steady income, moderate volatility and exposure to the Utility sector.
Summary table Risk vs Benefits of a covered call strategy
|Strategy||Selling call options on a security already owned in the portfolio|
|Name||Covered call strategy|
|Risk||Potential for limited upside if the stock price rises above the strike price|
|Benefit||Generates additional income through premium payments received from selling call options|
|Goal||To earn income from stock holdings while potentially reducing downside risk|
|Use||Often used by investors who are willing to sell their stock at a certain price if it reaches that level|
|Outcome||If the stock price stays below the strike price, the option expires worthless, and the investor keeps the premium payment. If the stock price rises above the strike price, the option buyer may exercise their right to buy the stock, and the investor must sell the stock at the strike price, but still keeps the premium payment.|
- HDIV ETF review: Hamilton Enhanced Multi-Sector Covered Call
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Performance Comparison ZWU ETF
|ZWU.TO||BMO Covered Call Utilities||8.45|
|ZUT.TO||BMO Equal Weight Utilities Index||3.91|
|XUT.TO||iShares S&P/TSX Capped Utilities Index||3.57|
|HUTL.TO||Harvest Equal Weight Global Utilities Income||7.88|
Historical performance updated daily
Asset under management
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|ZWU – BMO Covered |
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ZWU ETF Profile
ZWU ETF 52 weeks high and low
How to choose a good dividend ETF
– Total return: Though the focus here is on the dividend yield, you have to keep in mind the total return. The profit or loss we make on any investment combines both dividend income and capital gain or loss. Looking at the long-term performance of the fund is crucial. An ETF that provides a good capital appreciation with a high dividend yield is preferable.
–Diversification: A diversified ETF is always a safer option. Some high yield ETFs are sector-specific (Financials, Energy or Gold). The ones focused on Energy and Gold have had an inferior long-term performance and carry high volatility risk.
–Volume and liquidity of the ETF. The higher the asset under management, the lower the trading costs of the ETF (difference between the bid and ask price).
ZWU Dividend history
|January 2023||January 27, 2023||February 02, 2023||0.080000|
|February 2023||February 24, 2023||March 02, 2023||0.080000|
|March 2023||March 29, 2023||April 04, 2023||0.080000|
|April 2023||April 26, 2023||May 02, 2023||0.080000|
|May 2023||May 30, 2023||June 05, 2023||–|
ZWU ETF Holdings
|5.51%||BMO EQUAL WEIGHT UTILITIES INDEX ETF||ZUT|
|5.09%||PEMBINA PIPELINE CORP||PPL|
|4.90%||DUKE ENERGY CORP||DUK|
|4.86%||TC ENERGY CORP||TRP|
Consult issuers’ website for up-to-date data
ZWU Sector and geographic allocation
This table shows that the ETF has the highest allocation of its investments (55.60%) in the utilities sector, followed by communication services (23.42%), and energy (20.98%).
This table shows that the ETF has a majority of its investments (65.52%) in Canadian utility companies, while also holding investments (34.41%) in utility companies located in the United States.