After a year of brutal stock and bond market losses, many Canadian investors have seemingly adopted a "money now" mentality, flooding into income assets like covered call ETFs, preferred shares, high-yield bonds, real estate investment trusts, and dividend stocks. When it comes to those seeking high income, there is no shortage of Canadian ETFs available.
To meet this demand, some ETF firms have tailored their lineups to boast a wide range of income-oriented ETFs. A notable player in this space is Harvest ETFs, which specializes in monthly income solutions for retirees. The firm's current ETF lineup features two main categories: equity income and enhanced equity income ETFs. Let's take a look under the hood.
Harvest equity income ETFs
Harvest's lineup of equity income ETFs utilizes a three-part strategy designed to provide a balance of capital appreciation, steady income, and lower downside risk:
- The ETFs focus on growth industries that they anticipate will benefit from secular "megatrends" with structural tailwinds. In their equity ETF lineup, this includes sectors like energy, global REITs, technology, utilities, healthcare, and U.S. banks.
- The ETFs hold large-cap stocks selected for quality. Harvest defines this as companies with brand equity, a long record of strong financial performance, and industry dominance.
- Finally, the ETFs deliver consistent income by augmenting dividends with a covered call overlay on a portion of the portfolio. This delivers above-average monthly income, while still ensuring some upside participation and can reduce volatility slightly.
Some of the ETFs in this lineup that I find particularly interesting include:
- Harvest Canadian Equity Income Leaders ETF (HLIF): Holds an equal-weight portfolio of 30 of the largest Canadian dividend stocks via a rules-based approach. HLIF also sells covered calls. Right now, the ETF has a 0.65% expense ratio and pays a 7.43% yield.
- Harvest Healthcare Leaders Income ETF (TSX:HHLu) (HHL): Holds 20 large-cap global healthcare stocks, which have defensive characteristics thanks to inelastic demand for their products and services. HHL costs an expense ratio of 0.85% and yields 8.67%.
Harvest enhanced equity income ETFs
Investors looking for that extra "oomph" when it comes to income and returns can opt for Harvest's lineup of enhanced equity income ETFs. These ETFs apply modest leverage of 1.25x (25%) to enhance returns and income, in exchange for higher volatility.
Now, these ETFs are not like your average leveraged ETFs that are designed for short-term trading. Harvest's enhanced equity income ETFs use much more conservative leverage that can be held long-term, as they do not use swap derivatives, but rather borrow on margin.
For investors unwilling to manage a margin position on their own, these ETFs offer a professionally managed, hands-off solution. Some of the more interesting ETFs in this lineup include:
- Harvest Diversified Monthly Income ETF (TSX:HDIF) (HDIF): A fund-of-funds that allocates equal weights to existing Harvest ETFs covering healthcare, U.S. banks, Canadian equity, global utilities, tech stocks, and brand leaders. HDIF applies up to 25% cash leverage and implements a covered call strategy on up to 33% of its portfolio. Currently, HDIF yields 10.02%
- Harvest Tech Achievers Enhanced Income ETF (TSX:HTAE) (HTAE): Offers a way to invest in 20 of the largest global tech companies while earning income from a covered call strategy and enhancing returns/risk with 25% leverage. HTAE currently yields 11.13% thanks to the high volatility of the tech sector, which bodes well for covered call options premiums.
This content was originally published by our partners at the Canadian ETF Marketplace.