Larry Berman CFA, CMT, CTA BMO Europe High Dividend Covered Call Hedged to CAD ET ZWE-T COMMENT Aug 13, 2018

Covered call product reduces amount of capital gains. Good for defensive investors. Very reliable dividend yield. Excellent offering of companies covered in the ETF. 

Has been on the market for ~10 years. Average total return(annually) is 10%. Believes is a great product, and would recommend buying for the long term investor. Some of the best dividend companies are from Europe. Owns in portfolio. 

Right now, this is his preference. Going over the history of this ETF, the extreme was $1.50-1.60 CAD to euro. So anything above $1.50-1.55, you'd want to be hedged. Anything lower than $1.35-1.40, you want to be exposed to the foreign currency.

Recently we got back above $1.50. If it keeps going higher, that's fine. When you're hedging the CAD relative to Europe, their interest rates are lower than ours, and so you actually earn extra doing it.

There has been no growth for a number of years in Europe and this is not likely to change in the near term. Stick to the North American market for growth including dividends.

If you like high-dividends with a covered call in Europe, this is a hold and buy on weakness. Most of the return comes from income, mostly international companies. It's tax efficient to get dividends with international exposure. A good diversifier. Likes it very much. ZWE is currency-hedged. 

The U.S. is often the leader in what's going on in the world. He would wait before investing in a European ETF.

These covered-call ETFs have an underlying strategy of generating more income. What differentiates them is how much leverage is or isn't used. Doesn't know that for ZWE. He's never seen great returns outside North America and avoids foreign stocks. He prefers the hedge version.

If you're really looking for enhanced yield out of Europe, he really likes ZWP (high dividend payers, covered call, currency exposure) or ZWE (high dividend payers, covered call, currency hedged). The charts don't show a lot of gains, but that's because they pay out a pretty significant dividend (much bigger than ZDI, which is just dividends without the covered calls). 

If you're conservative and you want more tax-efficient income in a taxable account, he likes these ETFs with the covered calls a lot better than ZDI.

The answer is both, because the securities holdings underneath them are identical. ZWE is currency hedged, ZWP is not. The choice depends on your view of the CAD relative to the euro. If you don't want to trade, buy the hedged version; it'll be your better holding in the long run. Huge distribution (from selling calls), but not a lot of growth (as calls sell some of the upside).

Loves them both, uses them in his sleep-at-night portfolios. He goes back and forth, depending on his view of CAD vs. euro.

ZWE is better in the long run, but don't expect much growth. You're selling calls, but you collect a high dividend. Loves them both. This is hedged to the CAD. ZWE is more suited for the retail investor than the ZWP; don't worry about the currency exposure to the Euro.