# Hamilton Enhanced Multi-Sector Covered Call ETF - HDIV



## agent99 (Sep 11, 2013)

Anyone had a look at this new ETF yet?

Aims at 8.5% distribution!

Say it will have equal weights in these etfs:

ZWB BMO Covered Call Canadian Banks ETF14%
ZWU BMO Covered Calls Utilities ETF14%
HHL Harvest Healthcare Leaders Income ETF14%
HTA Harvest Tech Achievers Growth & Income ETF14%
FLICI U.S. & Canada Lifeco Income ETF14%
NXFCI Energy Giants Covered Call ETF14%
HEPHorizons Enhanced Income Gold Producers ETF14%

It will have an MER of 0.65%. Presumably this is on top of the MERs of the ETFs it holds.

This is what the G&M had to say

So what does it offer over and above the underlying ETFs? All I could see, was that the ETF could borrow money at lower interest rates than retail investors, then use it to gamble on our behalf? 

Am I too cynical?


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## james4beach (Nov 15, 2012)

I think it's garbage. A basic index ETF portfolio will outperform this.

The fact they are leveraging to invest in covered call ETFs show that the fund managers either are morons, or think that investors are morons. The covered call ETFs have a long, demonstrated history of underperforming their respective sectors.

There is absolutely no defence for leveraging into all those covered call ETFs instead of just buying the basic underlying sectors (banks, utilities, energy). The strategy is guaranteed to destroy money and the managers should know that.


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## agent99 (Sep 11, 2013)

Without doing any checking, I dont like it either. But if they are planning an 8.5% distribution, one would presume they have done backtesting to confirm they can do that. No index portfolio could likely do that without adding leverage and covered calls.


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## sridharcw (Jun 12, 2016)

When I initially looked at covered calls I found it to be kind of upgrade to a plain vanilla dividend ETF. A dividend ETF offers decent yield, some capital appreciation and safety. A covered call ETF spices it up a bit and also provides option writing income that reduces volatiality esp. during down or flat markets and yield backed up call writing income. The yield on covered call ETF can fluctuate depending on performance of call writing strategy by fund/fund manager. 
There is a risk-return trade off here. Writing riskly calls (in the money) leaves scope for a chance of potential loss on exercise, while writing (out of money) calls reduces risk, and the magnitutude would depend on how deep ITM or OTM. The other aspect is the core portfolio of stocks - dividend from those stocks and capital appreciation. If the stocks are solid and have good dividend and decent capital app. then the call writing income adds a nice icing on top of a safe portfolio. Writing too much of options (esp. ITM) can also lead to making small gains and selling off stocks that do well too early and missing out on the upside or growth in portfolio value. 

All in all its a balancing act of walking a tight rope to ensure portfolio is safe or stable and option writing enhances returns and reduces volatility (meaning the income from options adds value even during flat/down markets) so portfolio is sort of resilient or partly insulated from extreme market movements.


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