Opinions
Cole Kachur
Hamilton Canadian Bank 1.25x Leverage ETF
HCAL-T
RISKY
Oct 03, 2024
Stock price when the opinion was issued
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Covers Canadian banks. Pays a 5.16% dividend. It's a leveraged play, investing 12% of cash they're bringing in, which allows them a better return and more income. A consideration: ZWB uses a covered call on the Canadian banks to pay roughly the same dividend. He never does leveraged plays, but HCAL is fine.
Lightly levered. 25% of leverage that's balanced periodically, but not daily, so you won't get as much erosion. More like traditional leverage. Promising when rates were low, but no longer. Not a Beta Pro product, which has daily balancing of 100% leverage.
OK if you're very bullish on banks and need juice in your portfolio. For the long term, it's a double-edge sword of a 25% swing whichever way the market goes. Big selloff provides entry point. Extreme caution needed.
Equal exposure to the big 6 banks, with modest leverage. Leverage increases volatility. Drawdown over the last 2 years was 14% on this compared to 7% on the unlevered, unwritten ZEB. As you reach for yield, remember that leverage and covered writing deliver another edge to that sword on the downside.
An income play, using leverage and covered calls. Always be cautious using leverage. Leverage to the upside is great, to the downside it hurts a bit more. Income generated is very strong.
These strategies can work very well if you're less concerned about capital appreciation and more about income. Geared to work well in a sideways or down market. These products are popular, but he doesn't use them. Know what you're getting into.
There's another Hamilton ETF that isn't as levered. Its distribution is about half of HCAL, but performance has been significantly better. In an upward market, you want more exposure to the underlying bank stocks.