Hamilton Capital Partners has launched a new ETF providing lightly leveraged exposure to blue-chip, high dividend-paying Canadian utility companies.
The utility services sector has historically served to enhance the defensive characteristics of portfolios.
The Hamilton Enhanced Utilities ETF (HUTS CN) has been listed on the Toronto Stock Exchange with a management fee of 0.65%.
The fund targets three major segments of the utility services sector – utilities, pipelines, and telecommunications – which have historically functioned as defensive industries, offering relative stability and consistent dividends even during periods of heightened volatility.
Pat Sommerville, Senior Partner and Head of Business Development at Hamilton ETFs, said: “Given the historically defensive nature and strong record of stable dividends of the Canadian utilities sector, we believe it has the right ingredients for a strategy utilizing modest leverage to provide investors with the potential for enhanced long-term growth and higher monthly income.”
Methodology
The fund aims to deliver 125% of the daily return of the Solactive Canadian Utility Services High Dividend Index.
The index selects its constituents from a universe of stocks listed on the Toronto Stock Exchange that have market capitalizations above C$1 billion and average daily trading volumes greater than C$1 million.
The methodology screens for companies that are classified into the following FactSet industries: Electric Utilities, Gas Distributors, Water Utilities, Alternative Power Generation, Oil & Gas Pipelines, Major Telecommunications, and Wireless Telecommunications. To be eligible for index inclusion, constituents must also have a 12-month forward dividend yield of at least 3.0% (2.5% for current index constituents).
The index then selects 12 companies from the eligible universe, choosing the six largest firms within the utilities category and the three largest from each of the pipelines and telecommunications categories.
Constituents are equally weighted with reconstitution and rebalancing occurring on a semi-annual basis.
As of 2 September, the largest index positions were Pembina Pipeline (9.6%), Enbridge (8.9%), Brookfield Infrastructure Partners (8.7%), Hydro One (8.7%), TC Energy (8.4%), Brookfield Renewable Partners (8.2%), Fortis (8.2%), Emera (8.1%), and Algonquin Power & Utilities (8.1%).
The index’s trailing twelve-month dividend yield was approximately 4.5%, significantly higher than the 3% offered by the broad market S&P/TSX Composite Index.
The ETF gains its exposure by investing directly in the recently launched Horizons Canadian Utility Services High Dividend Index ETF (UTIL CN) which tracks the same index. HUTS then uses modest cash leverage to enhance its yield and growth potential.
Hamilton offers a further four ETFs within its ‘Enhanced’ suite of products. Two of these funds provide lightly leveraged exposure to Canadian stocks in the financials sector or banking industry, while the third delivers lightly leveraged exposure to a covered call strategy on the S&P 500. The fourth ETF, however, provides lightly leveraged exposure to a portfolio consisting of seven equally weighted covered call Canadian equity sector ETFs.