Brompton Funds converts two income sector funds to ETFs

Apr 3rd, 2018 | By | Category: ETF and Index News

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Canadian asset manager Brompton Funds has converted two of its sector-targeting mutual funds – the Global Healthcare Income & Growth Fund and the Tech Leaders Income Fund – to ETF units.

Brompton Funds converts two of its funds to ETFs

Following the conversion of the funds to ETF units, HIG and TLF have been listed on the Toronto Stock Exchange.

Following their listing on the Toronto Stock Exchange, the funds are now named the Global Healthcare Income & Growth ETF (HIG CN) and the Tech Leaders Income ETF (TLF CN). Both are actively managed with management fees of 75bps.

According to Brompton Funds, the conversion increases the liquidity of the funds and reduces the bid/ask spreads, resulting in a lower effective cost of buying or selling the ETF units.

Both funds use a similar approach to security selection whereby top-down analysis is used to initially identify attractive sub-sectors, followed by fundamental analysis which focuses the portfolio on stocks offering a combination of growth and value characteristics.

HIG provides investors with exposure to 15 to 30 large-cap healthcare companies listed globally, while TLF targets exposure to a more concentrated portfolio of 15-20 large-cap technology companies.

Both funds seek to enhance their income potential through the use of actively managed covered call writing strategies on up to 33% of the total value of their portfolios. HIG is currently displaying a distribution rate of 7.2% while TLF is offering 5.7%.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

Historically, during bear markets, range-bound markets and modest bull markets, this type of covered call strategy has generally outperformed its underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.

Both funds seek to mitigate exchange rate risk through currency hedging relative to the Canadian dollar.

HIG and TLF have assets under management of approximately $40 million each.

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