Opinions
Mike Philbrick
Hamilton U.S. Bond Yield Maximizer ETF
HBND-T
WEAK BUY
Jan 21, 2025
Stock price when the opinion was issued
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HBND targets a 10%+ yield and writes call options on around 50% of its holdings.
The ETFs distribution yield can benefit if interest rates or the expectation of interest rates rise, as not only the yield on the underlying bond holdings will increase along with interest rates, but a rising yield also means bond prices fall, which benefits the covered call portion of the ETF. But, this means that the price of the underlying bond holdings in the ETF could decline in value, and thus the unit price of the ETF.
If an investor feels that interest rates will continue to rise, then we think HBND can be beneficial in that scenario as the distribution yield and covered call feature will benefit, but the price of HBND will decline as bond prices fall. However, if rates stagnate or decline, this ETF may see some capital appreciation, but its yield can be negatively impacted. In other words, for an investor primarily seeking income, if rates continue to rise, this ETF can be attractive as its yield and covered call portion will benefit (but its unit price will decline). But if rates stagnate or decline, and for an investor seeking income, the yield on this ETF may come under pressure, but its unit price can see capital appreciation. Overall, it is an interesting security to enhance one's yield from a bond ETF. But, it is down 7.7% this year, so on a net basis hasn't really done much (yet) for investors. We think it is OK, but would like to of course see longer performance numbers.
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It holds 17-year US treasury bills, so changes in interest rates will have a major impact. It also has an active call strategy for half the ETF, so returns will vary given the options premiums. Is no leverage in this portfolio. Caveats: significant returns once came from owning US dollars, but this ETF has hedged this back to Canadian dollars so those returns are gone. The MER is a reasonable 0.45%. A complex ETF.
This holds long-duration US bonds, like 17 years on average. Is a little more volatility here. You can buy in USD or hedged, but prefers USD for its extra returns in times of strife. The covered writing adds returns, totalling 10-11%. However, covered writing anywhere caps your upside. So, do you want extra yield or upside during a growth shock?