BMO Dow Jones Indus. Avg. Hedge ETF (ZWA.TO)

A covered call on the Dow. He still likes it. A core covered call holding for him. They take all 30 Dow stocks and sell calls against each of them individually. When you are selling calls on individual stocks “in” a basket, you are doing better than if you were just selling calls “on” the basket.

How does hedging work? Every month they look at the assets and write a forward contract on the currency. The cost of hedging between US and Canadian $ is relatively low. It costs 25-50 basis points and is part of the tracking error, rather than the MER.

We have to remember what a Covered Call is. Money comes into this ETF and there is an obligation to Sell stock at a particular price. Covered Calls can limit your upside. Covered calls look great in a trendless market. You don’t want markets way up and you don’t want markets way down. It definitely adds income to your portfolio. When looking at this, you have to look at the marketplace and get some idea where you think the markets are going.

This gives you some actual capital gains income from the US market, instead of always being in terms of income, because the covered calls are treated as capital gain. He likes it because he can be in the US market with a little bit of a hedge on, and he likes the income component of it. Also, BMO doesn’t sell the calls against the index; they sell them against all the stocks in the DOW, which gives you a better bang for the buck. You have to remember that this is a little expensive at around 70-75 basis points.

His biggest holding is ZWA-T because he wants US exposure, but not the currency risk. It has a nicer yield.

He likes this. They sell the Calls on each of the 30 Dow stocks, which is why you get a better yield than if you are just selling it against the Dow or selling it against the equal weight bank index. However, the MER's are too high.

This is lightly traded, but it doesn’t matter. You’ll be fine. The Covered Calls are treated as capital gains. A good product.

If the market is going to be volatile in the Dow Jones and the premiums are good, you can pick up a pretty good yield on this. His preferred way of playing the Dow is straight up and in US dollars. People should take a really close look at the Dow’s 30 components. (Underperformed the S&P 500 in 2013.) It has a lot of very good high-quality dividend paying stocks. You could probably take a good hard look inside and find some interesting names that you might want to include in your portfolio.

Hedging via a forward contract to protect against the US dollar going down. Pretty straight forward. Likes the product.

With this you are limiting your upside with covered calls. Covered calls were great in a trendless market, but if you are looking for something that is going higher, you do not want to limit your upside.

Vanguard S&P 500-CAD Hedged (VSP-T) or BMO Dow Jones Industrial Average Hedge (ZWA-T) and in the next 3-6 months? These are 2 very different things. This is Covered Calls on the Dow. Dow has actually lagged the S&P 500. Unfortunately this one is obviously selling away future gains by using covered call writing. The yield might be better but he would prefer the other.

Dow with covered call overlay. You get extra income. He likes this because the markets are so high. You get the Dow dividend plus the covered call overlay. Broad diversification globally.

BMO Dow Jones Industry (ZWA-T) or Horizons Enhanced US Equity (HES-T)? These writes Calls on Dow Jones Industrials and on the individual stocks, rather than on the index. Likes both and that he can use these to basically draw income from the US market and will be taxed as capital gains. However, there is a big difference between the two. HES-T writes options on all the stocks all the time, whereas this one is on 50%-60%. This one has outperformed HES-T. If you are looking for income as well as the upside, you should look at this one.

Dow with covered call overlay. Dow yields 2.2% and this one does 4.5%.

(Top Pick Oct 26/12, Up 16.65%) They sell the calls on all 30 stocks. He bought it because he wasn’t sure what the market was going to do. It gave a good income stream. A lot of the distributions come back as capital gains from the US.