Opinions
Richard Orrell
Hamilton Utilities Yield Maximizer ETF
UMAX-T
HOLD
Jan 20, 2025
Stock price when the opinion was issued
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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.
Most of the names in UMAX are seeing downward pressure on their share prices mostly due to high debt levels and margin compression from high interest expenses. With a decline in rates, we could see several of the underlying names in UMAX bouncing higher, and we feel that this could bode well for UMAX, however, it is a covered call ETF and so its unit price will not see as large of an increase as the underlying holdings would in the event of a rebound. For an investor seeking high yield and the potential for a recovery in share price, we think this name can do well if rates continue to decline, although, due to its covered call strategy, the unit price can continue to slide from here.
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Hamilton ETFs has a whole series of sector-based, option strategy ETFs for enhanced income. He likes these ETFs, but it you are really bullish on the outlook, you want the underlying holdings and not the extra income necessarily. But if you want income, this is a great way to get it tax-efficiently, though you will give up long-term growth.
Leverage and covered calls to generate income. The utility trade has already happened with lowering interest rates, so further capital appreciation is limited. Know why you're owning it.
Less risk in ETFs, so you could pick some different sectors for a weighting of 10%.
A good sector with minimum volatility.