Harvest Portfolios Group has launched the Harvest Equal Weight Global Utilities Income ETF (HUTL CN) on Toronto Stock Exchange.
The fund invests in an equally weighted portfolio of global utility companies while seeking to boost income through the use of covered calls.
While the fund is technically actively managed, its investment process is primarily rules-based. The ETF invests in an equally weighted portfolio consisting of the 30 largest utility companies listed globally. Constituents must have tradeable call options with sufficient liquidity to be eligible for selection. Reconstitution and rebalancing occur on a quarterly basis.
In a bid to enhance monthly income and lower portfolio volatility, HUTL may write covered call options on up to 33% of the value of the portfolio’s assets.
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.
According to Harvest, the fund is currently yielding an impressive 7.0%, while the average dividend yield of the portfolio is 4.4%.
The ETF hedges back foreign currency exposure relative to the Canadian dollar.
“Harvest believes we are in the latter stages of the current economic cycle where investors may look for more defensive investment opportunities,” said Michael Kovacs, President & Chief Executive Officer, Harvest Portfolios Group. “Utility stocks may be attractive to investors because of their reputation for predictability and dependability. These companies produce and deliver essential services – water, natural gas, sewer services, and electricity – and have a long history of dividend yields.”
HUTL comes with a management expense ratio (MER) of 0.50%.