Stockchase Opinions

Larry Berman CFA, CMT, CTA Hamilton Canadian Financials Yield Maximizer ETF HMAX-T PARTIAL BUY Sep 16, 2024

Good. Has a covered call overlay, holding financial services including lifecos, with an options strategy. It may have a little leverage, and a little more volatility but also a little more of a return. That said, if you're bullish on the underlying space, own the individual names for the long term. If you're short term or seek higher yields, then these products will generate higher, tax-efficient income, but will underperform long term. A rule of thumb.

$14.390

Stock price when the opinion was issued

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HMAX vs. UMAX

Key difference is UMAX is focused on blue-chip, Canadian utilities. Reduces volatility by writing an options strategy. If you think we're going to be entering a more tumultuous period, utilities tend to do better.

HMAX is a similar setup, but with underlying financials. 75% exposure to the big 6 banks, which have struggled. Argument that banks' exposure to real estate makes them more economically sensitive. In a good economic environment, banks will do better.

Neither uses leverage. When the yields get juicy, remember that some of that's return of capital. Also remember that covered writing can be a drag if the market is anything but flat, slightly up, or slightly down.

COMMENT

He'd have to look at it, but generally for such a high yield, you have to give something to get something. What are you giving up? Often leverage is used, which adds risk. Covered call strategies can usually work in a sideways market, which is what the banks appear to be in.

The high yield is often not sustainable. But he would need to analyze it further to give a solid opinion.

RISKY

Combination of underlying of stock dividends, and volatility of call strategy. Good product, but would recommend a portion of portfolio. Don't rely on the yield only - need to understand the product fundamentals. ~15% seems unsustainable. 

PARTIAL BUY
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

HMAX uses 'at the money' call options to enhance income. This, plus dividends, and capital gains, allows it to pay high income. Note the distribution rate does vary, and has declined a bit since inception. The fund could lag in a sector rally, and will still likely decline in a market correction. It is also entirely exposed to the financial sector. But for investors who understand covered call funds, and want enhanced income, we would be fine owning it. 
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DON'T BUY
HMAX vs. ZWU -- benefit from lower interest rates?

ZWU is far more interest-rate sensitive, as it focuses on utility companies. Generally as interest rates fall, utilities do better. HMAX is financial services, insurance, lifecos. Falling rates not necessarily good for them, because they're more sensitive to interest rate cuts for a slowing economy with prospects of a harder landing.

So, if rates are coming down due to an economic slowdown (as he believes), then ZWU will probably outperform HMAX in the short run.

BUY
ZWU vs. HMAX

Both hold financials,but ZWB uses covered calls. HMAX has performed a little better and offers a little more yield. ZWB writes only half the securities, so it takes in less yield, but gets more upside capture. The price return is 11% on ZWB in the past year vs. HMAX's 6%, but the total return is close. However, ZWB pays you you more of a yield. nearly 7%, but gives less growth. 

WEAK BUY

The base is around $14.50 an is making higher highs and higher lows. It's okay as long as the chart doesn't take out the last low.

BUY
Buy it for income?

They do a good job. It carries a basket of financials and does not use leverage. To generate their 14% yield, they write the options right at the money. So you get no or little upside in the stock itself.

BUY

It is fine for financials and provides a little insulation. He wouldn't go any higher than 10% on a single ETF in a sector.