Hamilton launches income-enhanced Canadian financials ETF

Jan 23rd, 2023 | By | Category: Equities

Hamilton Capital Partners has launched a new equity ETF targeting the largest financial services companies in Canada while boosting portfolio yield through an actively managed covered call overlay.

Pat Sommerville, Senior Partner and Head of Business Development at Hamilton ETFs

Pat Sommerville, Senior Partner and Head of Business Development at Hamilton Capital Partners.

The Hamilton Canadian Financials Yield Maximizer ETF (HMAX CN) has been listed on the Toronto Stock Exchange with a management fee of 0.65%.

The fund targets a sizable annual yield of 13% at launch. Distributions will be made to investors from the fund on a monthly basis.

The ETF invests in a market cap-weighted portfolio comprising the ten largest Canadian financial services companies. As of December 2022, the average dividend yield of these companies was 4.11%. The portfolio is reconstituted and rebalanced on a semi-annual basis.

Hamilton then harnesses the option investing capabilities of Horizons to execute the covered call portion of the strategy.

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 the option’s 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, covered call strategies have generally outperformed their 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.

According to the ETF’s prospectus, Horizons will opportunistically pursue covered call strategies on up to 100% of the value of HMAX’s portfolio. Call options will typically be sold at-the-money or slightly out-of-the-money.

Commenting on the launch, Pat Sommerville, Senior Partner and Head of Business Development at Hamilton Capital Partners, said: “Monthly cash flow continues to be of significant importance to many Canadian investors, and we are excited to launch HMAX which has been designed with those investors in mind.

“With an initial target yield of 13%, HMAX will be the highest-yielding financials ETF in Canada, providing exposure to a portfolio of Canadian banks and financials with an innovative active covered call strategy to enhance monthly income and reduce volatility.”

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