BMO Covered Call Canadian Banks ETF (ZWB.TO)

A sector play just on Canadian banks, which he likes better than a broadly diversified portfolio. His concern on a broadly diversified portfolio is the movement of different sectors in the course of a business cycle. You lose the sectors as they are rising, and you end up continuing to hold the sectors that are declining. This one is only one sector. The banks are averaging about 4.25% dividends, and about half the income comes from dividends and the other half comes from capital gains on the sale of options. They only write options on about 50% of the portfolio, so you are getting some upside anyways as banks continue to rise. A good ETF.

You have to look at the costs of the covered calls as well as MERs for these ETFs. The banks are so far performing the way they should. All banks are slightly down this year. In 2008 ALL the banks were down 40%. He would like to be more diversified. If we were in a long sideways market, then the covered calls would be beneficial.

Provides about a 5% yield, which is capital gains and dividends. Pretty much a core holding for him.

The great thing about covered calls is that they offer you some upside when things are going down, but also take some of the downside away when things are going up. The “covered call” methodology regulates so that the highs are less high and the lows are less low.

Dividends aren’t going up. The premium on the options is lower. The dividends on the underlying banks are increasing, but the premium on the covered calls has been coming down.

(Top Pick Jan 19/16, Up 34%) Another core holding. BMO has a number of good covered call strategies.

Individual banks have done a lot better, so why should a person buy this ETF? If you have enough money to buy all 5 banks individually and you don’t mind paying for 5 trade tickets, then you might very well be better off buying the 5 banks. If you are worried about banks going sideways, this at least gives you the chance to make some money on the covered call writing that this ETF does.

In a strong upward market it will underperform the equal weight without covered calls. Despite what others have said, these are not bad for long term holds. They do not, however, replace fixed income because you have equity exposure.

30% was return of capital in 2016. In the beginning of 2016 there was about 65 million units outstanding. By the end there were 5 million new units. They then had to pay out on additional shares. They do a return on capital so that everyone gets the same amount of payout. You are not getting your own money back. It is an adjustment because there are now more units. This is the structure of a growing fund.

Covered call ETFs from BMO etc. pay mostly eligible dividends. A TFSA should have VERY taxable things in it and put ETFs like this one OUTSIDE the TFSA.

Covered call banks, but ZWC-T covers more economic sectors. Banks are 21% of the TSX and are that potion of ZWC-T.

There is no real negative from the covered call strategy in a dropping market unless the stock goes down by large up & down movements. However, it enhances your yield while you are waiting out the downturn.

The MER is in the 40-50 basis point range. The enhanced yield is created with an option writing overlay. They write one standard deviation out of the money. The options can enhance yield 1.5 percentage points over time.

It has a covered call overlay. A lot of good news is priced into the banks so he would not be chasing this one, but be a dup-buyer in the Canadian banks.

If he were a sector guy, financials is a sector he would be in. Canadian equities have been a very solid investment for the past while, especially with the covered call option. A very good product.