John HoodPremium Income Corp. (A)PIC.A.TOCOMMENTAug 30, 2013

PIC.A is a split share corp that invests in stocks of companies operating in the banking sector, primarily the six Canadian banks. The fund also uses financial derivatives, such as a covered call writing strategy, to enhance income generated by the portfolio and reduce volatility.

PIC.A is essentially a way to provide investors with leveraged exposure to Canadian banks. Of course, leverage works both ways. When it works, the strategy could outperform owning the equities directly. However, it is also much more volatile on the downside. We tend to shy away from these types of structures. They can work for some investors in certain circumstances but generally we would prefer to jut own the underlying stocks/companies. 
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This fund has 5 banks, and they split the capital shares, and the preferreds represent the dividends. A very good income producing pick, because it is about a 6% yield. If you think banks are going to continue to go up, which he does, you will continue to get a high dividend.

BMO Covered Call Cdn Banks (ZWB-T) or Premium Income Corp (PIC.A-T)? If you want to be in the banks for the next few years, ZWB is probably the better holding. Doesn’t know much about this one, but it would appear that it uses a significant amount of leverage. With this one, when it is bad like in January or February, it is really bad, probably because of the leverage. Leverage is high risk. 7 years into a Bull cycle is not the time you want to play leverage and high risk.

Think of it as a call on the 5 Canadian banks. 14% payout but it won’t continue, runs to 2017. A cheap way to play it. Put into a TFSA and enjoy next Christmas.