Harvest Portfolios Group has launched the Global REIT Leaders Income ETF (Toronto: HGR), an actively managed ETF investing in real estate investment trusts (REITs) listed globally.
The Global REIT Leaders Income ETF invests in between 20 and 30 REITs listed on developed market exchanges.
The fund seeks to provide a high level of monthly income while pursuing opportunities for capital appreciation. It invests in between 20 and 30 REIT issuers, chosen from the REIT Leaders Investable Universe which constitutes REITs that have a market capitalization of at least $2 billion and are listed on a developed market stock exchange. In order to provide diversified exposure for Canadian investors, the ETF aims to primarily focus on REIT Leaders with operations and/or offices outside of Canada.
In addition, the ETF targets lower overall volatility of portfolio returns than would otherwise be expected by owning equity securities of the REIT Leaders directly. To achieve this the ETF will generally write covered call options on up to 33% of the option eligible portfolio securities. The level of covered call option writing may vary based on market volatility and other factors.
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. This additional income stream may also provide a small ‘buffer’ if the underlying asset prices decrease (although the strategy is usually not chosen solely for price hedging).
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.
Michael Kovacs, president & chief executive officer, Harvest Portfolios Group, commented: “The long term growth objective of holding top quality REITs across developed nations while generating monthly income is a welcome addition and complement to Harvest’s family of ETFs.”
There are currently 29 holdings in the fund with an average market capitalization of $22.5bn. The fund’s current yield is 5.5%.
The largest country exposure is to the US at 42% while Australia (17%), Germany (10%) and France (10%) also hold significant weights. The largest sub-sector allocation is to diversified REITs (26%) followed by healthcare (18%), residential (16%), specialized (14%) and industrial (11%) REITs.
The ETF has a management expense ratio of 0.85%.