In part 1 of our series on Canadian-covered call ETFs, I focused on offerings from larger firms like BMO (TSX:BMO) Global Asset Management, CI Global Asset Management, and Horizons ETFs. If you haven't had a chance to read that article yet, you can find it here. These firms have an extensive list of covered call ETFs covering nearly every equity sector and most countries.
There was one notable firm excluded from the lists though - and this was simply due to a lack of space – Harvest ETFs. This firm specializes in high-yield income solutions and has an extensive list of ETFs utilizing the covered call strategy. We will be profiling their offerings in a dedicated article later. The focus of these articles is on generalist ETF firms that also offer covered call ETFs.
That being said, the smaller firms are also worthy of your attention. Despite having lower assets under management and less of a track record, these firms are by no means inferior. Many of these ETF managers have demonstrated an ability to innovate and listen to investor demands. Let's take a look at three smaller firms and the range of covered call ETFs they have to offer.
Another refresher on covered calls
If you're new to covered call ETFs, I suggest giving this article a read, which examines the mechanics of how these ETFs work and their risk/return profile in-depth. If you're familiar with how these ETFs work, then read on for the abridged explanation and some trends I've observed recently.
ETFs that employ the covered call strategy aim to deliver above-average income while also participating in some price appreciation. These funds typically hold equities and generate income by selling call options on the underlying assets. This results in a portion of the ETF's potential gains being transformed into an immediate cash premium, which is typically distributed to investors on a monthly basis.
In recent times, the covered call ETF landscape has seen several developments, such as:
- A growing number of ETF providers are capping the options overlay at 33% or 50% to ensure a balance between income and growth potential.
- Some ETF providers have shifted from a passive to an active approach in managing their covered call ETFs to make the most of market volatility and other factors.
- The reach of covered call ETFs has expanded beyond just Canadian equities, and now includes commodities, foreign equities, cryptocurrencies, and even individual stocks.
Evolve ETFs
Boutique Canadian ETF manager Evolve ETFs recently hit $5 billion in AUM despite the 2022 bear market thanks to the popularity of products like their thematic ETFs and the High Interest Savings Account Fund (HISA), which has steadily moved up to a 4.99% yield due to interest rate hikes. Recently, Evolve ETFs launched a new set of index enhanced yield ETFs that utilize covered call strategies on the S&P 500 and S&P/TSX 60 to augment their existing lineup of global sector equity ETFs.
- Evolve Canadian Banks and Lifecos Enhanced Yield Index Fund (BANK)
- Evolve Global Materials & Mining Enhanced Yield Index ETF (BASE)
- Evolve Slate Global Real Estate Enhanced Yield Fund (BILT)
- Evolve US Banks Enhanced Yield Fund (CALL)
- Evolve European Banks Enhanced Yield ETF (EBNK)
- Evolve Global Healthcare Enhanced Yield Fund (LIFE)
- Evolve S&P 500 Enhanced Yield Fund (ESPX)
- Evolve S&P/TSX 60 Enhanced Yield Fund (ETSX)
Purpose Investments
Purpose Investments is a firm with a track record of delivering innovative products. Earlier, the firm released the first Bitcoin and Ethereum covered call ETFs. Recently, the firm launched the first single-stock ETFs in Canada with covered call overlays. These ETFs are a marked departure from the usual sector/index covered call ETFs, and rank among the most unique in the Canadian ETF industry.
- Purpose Bitcoin Yield ETF (BTCY)
- Purpose Ether Yield ETF (ETHY)
- Apple (NASDAQ:AAPL) Yield Shares Purpose ETF (APLY)
- Berkshire Hathaway (NYSE:BRKa) (BRK) Yield Shares Purpose ETF (BRKY)
- Alphabet (NASDAQ:GOOGL) Yield Shares Purpose ETF (YGOG)
- Tesla (NASDAQ:TSLA) Yield Shares Purpose ETF (YTSL)
- Amazon (NASDAQ:AMZN) Yield Shares Purpose ETF (YAMZ)
Hamilton ETFs
Hamilton ETFs currently offer two covered call ETFs that cover broad U.S. and Canadian sector equities. Outside of their covered call ETF lineup, Hamilton also offers "enhanced" ETFs that deploy modest 25% (1.25x) leverage on Canadian equity sectors to boost yields and returns.
- Hamilton Enhanced U.S. Covered Call ETF (HYLD)
- Hamilton Enhanced Multi-Sector Covered Call ETF (HDIV)
This content was originally published by our partners at the Canadian ETF Marketplace.