Purpose Investments has launched two actively managed exchange-traded funds on the Toronto Stock Exchange which cater to investors seeking income-generating opportunities. The Purpose Conservative Income ETF (PRP) and the Purpose Canadian Financial Income ETF (BNC) invests in developed North American and Canadian securities respectively while each employs derivatives to either manage downside risk or further boost income.
Som Seif, President and Chief Executive Officer of Purpose Investments.
“Today’s launch of these two new funds represents an important expansion of Purpose’s income solutions suite,” said Som Seif, President and Chief Executive Officer of Purpose Investments. “The Purpose Conservative Income Fund and the Purpose Canadian Financial Income Fund provide investors with important and innovative ways to help satisfy the need for regular monthly income while managing risk through option strategies.”
The Purpose Conservative Income ETF provides a risk-managed strategy with a moderate level of income while seeking modest capital appreciation. The ETF invests across a range of asset classes in US- and Canadian-listed securities.
As of 27 October 2016 the fund is invested in the following asset classes: fixed income (46.7%), dividend equities (26.5%) and low risk equities (24.1%); with significant sector exposure to investment grade corporate bonds (30.1%), high yield bonds (15.5%), financials (6.8%), utilities (6.5%) and consumer discretionary (5.9%).
To manage downside risk the fund incorporates an equity collar on the S&P 500. An equity collar consists of buying a put option and selling a call option on an underlying index, usually done so that the net cost of establishing the position is approximately zero for the investor. When combined with a stock portfolio, the collar provides downside protection due to the profit on the put when the index falls below its strike price. The collar does limit portfolio upside gains however due to the loss on the call position if the index rises above the call’s strike price.
The fund’s management fee is 0.55%.
The Purpose Canadian Financial Income ETF provides exposure to a concentrated portfolio of the largest Canadian banks and life insurance companies.
As of 27 October 2016 the fund has ten holdings of which the largest positions are National Bank of Canada (11.6%), Toronto Dominion Bank (11.5%), Bank of Montreal (11.4%), Bank of Nova Scotia (11.4%) and Royal Bank of Canada (11.2%).
The fund incorporates a covered-call strategy on up to 25% of the portfolio to provide investors with enhanced tax-efficient monthly distributions. Covered call strategies involve selling call options on stocks already owned in the portfolio. The premiums paid for the call options provide the investor with a regular income stream but the investor also limits his potential for upside gains due to the loss on the short call position when the stock’s price rises above the call’s strike price.
The fund’s management fee is 0.55%.