RBC iShares has launched two new ETFs providing actively managed exposure to US and Canadian dividend-paying stocks while further boosting income through covered call overlays.

Stu Kedwell, co-Head of North American Equities, RBC Global Asset Management.

The RBC Canadian Dividend Covered Call ETF (RCDC CN) and RBC US Dividend Covered Call ETF (RUDC CN) have been listed on Toronto Stock Exchange with management fees of 0.64% each.

Managed by RBC Global Asset Management’s North American Equities team, the funds are designed for investors seeking high current income while also mitigating some of the downside risks inherent in stock market investing.

RCDC and RUDC deliver access to diversified portfolios of Canadian or US equities, respectively, that are expected to provide regular income from dividends. Security selection is based on proprietary fundamental research that considers a business’s outlook and its financial ability to sustain or grow dividend payments.

Each ETF then pursues opportunistic covered call strategies on broad North American equity indices or on individual securities held within the portfolios.

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.

While covered call strategies do limit upside participation, they can generate steady income during turbulent periods and diversify an investor’s sources of yield away from equities and bonds which historically have struggled during rising rate environments.

Stu Kedwell, co-Head of North American Equities at RBC Global Asset Management, said: “In response to today’s uncertain market environment, investment solutions offering enhanced income streams with some ability to reduce volatility have become attractive to investors. The RBC covered call ETFs are designed to meet this need, utilizing RBC Global Asset Management’s demonstrated expertise in active dividend investing combined with our capabilities in option writing.”