Allan Meyer BMO Covered Call Canadian Banks ETF ZWB-T COMMENT Apr 01, 2016

Different types of return of capital. The difference tax-wise is that when a strategy is giving you a certain yield, that they're not earning, they're giving you back your own money. That's the one that's dilutive to your net asset price. That's not what happens in this ETF.

If the underlying ETF is generating dividends and incremental income on a covered call overlay, and paying those out, it's not an erosion of your income.

Sometimes, there has to be a tiny bit of ROC when very recent investors to a fund are owed their dividend, but their investment hasn't yet had enough time to generate what they're owed. So there might be a small ROC in the interests of fairness to all unitholders of the fund.

You need a higher return than a bond is going to give you today to keep up with inflation and grow your savings. Alternative ETFs such as ZWU, VCNS, ZWB, ZWC, and PJAN are what's needed to protect your portfolio, rather than conventional bonds. 

These are what you need to generate the income you'll need for retirement, to get a real return on your investment, more than just protection of principal.

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.

A put/write covered call income-focused strategy using options can generate extra income. ZWB is covered call banks. If you're bullish on the market, ZWB will give you more upside than ZPAY. If you're conservative on the market, and you think there's going to be more volatility, ZPAY will do better for you.

Right now in his dividend fund, he owns ZPAY but not ZWB. 

Covered calls portfolios have underperformed. Financials are fully valued after a big, recent run. He suggests buying part of this and part of an equal-weight bank ETF.

That's a very specific question about one investor and their financial circumstances, risk tolerance, etc.

If we're going into an environment of slower economic conditions, then ZWU is likely to do a bit better. This would be due to the Canadian banks pulling back. He loves them both, great exposures. A bit concerning if all a retiree's portfolio is in just those two vehicles; there's not much diversification either within or outside of Canada.

Consider adding ZPAY, which gives you some US exposure to big banks and tech, and with a lower risk profile.

He doesn't see a hard recession coming, though any recession in Canada will be harder than in the US. In a hard recession, Canadian banks can easily fall 20-30%. A lot of the rally in recent months has been the recognition of aggressive rate cuts by the Bank of Canada. A lot of that's already in the market, and you have more downside risk than upside potential in terms of the next year or two.

That doesn't make it a bad ETF, but the question is what are you going to put your money in to generate the same kind of yield? He'd suggest considering a tilt more toward ZWU. This would give you diversification, plus let you keep your high-dividend yield with tax-friendly exposure for Canadian taxpayers.

Reliable for income up until last fall and the TD fiasco; worried about contagion among Canadian banks. Now looking at this again. Not buying just yet, still looking at it. MER is 0.7%.

If you want exposure to financials and get growth in an up market. Is designed for income, but you don't get growth in the ETF price.

Yield is 7.1%, fairly tax efficient from distributions and ROC. Great for investors that want that yield. However, more often than not, the underlying securities will perform better on a total return basis. With the covered call, you get struck out as prices go higher over time. See ZEB.