Brompton Funds launches three active income ETFs on TSX

Oct 22nd, 2018 | By | Category: Alternatives / Multi-Asset

Brompton Funds has launched three new actively managed ETFs on Toronto Stock Exchange.

Brompton Funds launches three active income ETFs on TSX

Each of the three ETFs seeks to provide investors with a high level of current income.

The funds provide investors with high-income solutions via portfolios of preferred securities, global dividend-paying stocks, and North American stocks from the financials sector.

Each fund hedges its currency exposure back to the Canadian dollar and comes with a management expense ratio of 0.95%.

Preferred securities

The Brompton Flaherty & Crumrine Investment Grade Preferred ETF (BPRF CN) invests in a portfolio of preferred and income-producing corporate securities including traditional preferred stock, trust preferred securities, hybrid securities, contingent-capital securities, subordinated debt, and senior debt.

Sub-advised by US-based Flaherty & Crumrine, the fund will mostly target investment-grade securities from North American issuers, although preferred securities from issuers outside of the continent may be bought if they are denominated in US or Canadian dollars. Up to a quarter of the portfolio may be opportunistically invested in high-yield securities in an effort to enhance returns.

To select individual holdings for the portfolio, the sub-advisor leverages 30 years of proprietary data on over 1,500 preferred securities, evaluating credit risk thorough vetting of securities’ terms and structures.

BPRF’s targeted distribution rate is 5% per annum, to be paid monthly. It comes with a management expense ratio of 0.95%.

Global dividends

The Brompton Global Dividend Growth ETF (BDIV CN) invests in at least 20 high-income equities from companies globally that either have a history of dividend growth or are expected to increase dividend payments in the near term.

Secondary factor considerations when selecting holdings include the valuation, profitability, balance sheet strength, and trading liquidity of the equity securities. To be eligible for inclusion in the portfolio, a company must have a market capitalization of at least $10 billion.

The manager will combine this bottom-up selection process with a top-down analysis of factors such as macroeconomic conditions, political conditions, and sector fundamentals when determining the geographic and sector allocation of BDIV’s portfolio, in addition to consideration of diversification across regions, countries, sectors and industries.

In order to boost income and reduce portfolio volatility, the manager may write covered calls on up to a third of BDIV’s portfolio.

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.

BDIV’s targeted distribution rate is 6% per annum, to be paid monthly.

North American financials

The Brompton North American Financials Dividend ETF (BFIN CN) invests in at least 15 high-income North American financial services companies with market capitalizations greater than $5 billion.

The fund is run in a similar manner to the global dividend ETF, combining a bottom-up security selection approach (considering dividend growth potential, valuation, profitability, current dividend yield, balance sheet strength, and trading liquidity) with a top-down comparison between the United States and Canada’s macroeconomic and political conditions as well as differences in regulation and sector fundamentals between the two countries’ financials sectors.

Up to 20% of BFIN’s portfolio may be invested in financial services-related companies or in global financial services companies.

BFIN’s targeted distribution rate is 5% per annum, to be paid monthly.

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