BMO Europe High Dividend Covered Call Hedged to CAD ET (ZWE.TO)

A Covered Call ETF on European stocks. The European stock market has underperformed Canada relative to the US since the financial crisis. There is potential upside if you believe they are getting their act together. Most of these ETF's tend to sell Call options against half the portfolio. The challenge is the same as you would have with any ETF that has a broad base of securities in it, because you are looking at securities from various industries. The ones going up are going to be capped and pulled out, and the ones going down the options are going to expire worthless, but you are going to end up writing options on half of those with a lower strike price, which means they can never get back to where they where. You have to be aware of these issues when dealing with a broad-based portfolio and the downside of covered calls.

(A Top Pick May 11/17. Up 0%.) He likes their exposure to Europe, and it has a Covered Call overlay. The yield is close to 5%-6%. The only trouble with Europe is that it is a political morass, so he could pull the trigger on this holding at any time.

Europe, high dividends, CAD$ hedged. Don’t look for another 22% return, however. He gets some downside protection and a yield of about 5%.

EUFN-N vs. ZWE-T. EUFN-N is an interesting way to get exposure to European banks. The risk is that the European recovery does not take hold. It appears the world is recovering and that the banks are a good place to be, although his outlook longer term is not great on them, and so he does not recommend it. He sees more risk than not. Otherwise, it is a good way to play European banks. He prefers ZWE-T for the yield and the covered calls to lower risk.

ZWE-T vs. ZPH-T. ZPH-T is the put write strategy. If we have an acute sell off, both will lose a little money. If you are branching outside of Canada, there is no dividend tax credit, but put write gives additional income. He recommends having a bit of both in order to diversify. Europe is a bit more attractive over the next couple of years.

European ETF. The yield is down because the covered call premiums are low right now due to low volatility. EUR-T is an alternative. PRD and RPDH are alternatives also. Europe is underperforming a little bit because the Euro is getting strong and they are exporting a lot.

$40,000 in a TFSA to invest in US and international equities giving protection of the principal amount? When looking at US and International ETF’s, he is not a huge fan of emerging markets. If he were doing it, he would look at VEE-T emerging-market, ZWE on Europe and the XSP on the S&P 500.

How does Larry make a major buy of an ETF without moving the needle? You can call up an ETF and have them facilitate a very large order, regardless of the liquidity. They create the necessary ETF units as part of the transaction. ETFs have the liquidity of the universe of underlying stocks.

Continental Europe is an area he likes. He is bullish on the prospects for Germany and France, especially given that the political atmosphere has improved considerably. Rather than playing dividend oriented ETF’s, he tends to play broader ETF’s. When a regional market is recovering, banks tend to be the leader coming out, so he would prefer a European bank index such as iShares MSCI Europe Financial (EUFN-Q) that might be a bit more interesting. You don’t need to pay the big premium for a specialty when you can get into a wider regional area.

This is to diversify away a little from the US. BMO is doing the covered call on the largest European stocks and it is hedged, which is the way he wants to be in Europe. Dividend yield of about 6.6%.

With elections in Europe, what would be the outcome on this ETF? If you are a contrarian and you have some ability to withstand the risk of buying on a dip, he doesn’t believe the world is going to end, and he doesn’t think this is going to be a problematic thing for a very long time. If things take a pullback in the next day or 2, it may be an opportunity to get in.

[In a non-registered account] The dividend stream coming off a foreign stream is fully taxed. In registered accounts you can hold foreign holdings that would otherwise be fully taxed.

This is the way he is holding Europe in his global dividend strategy. A great way to get a 6%-7% yield out of Europe. The yield has gone down, because the price is gone up significantly over the last year, but it is still a great diversifier away from North American equities.

A play on Europe where he does not have to worry about the Euro or the Pound.

There is always foreign tax withholdings. You need to focus on the diversification of being in other parts of the world. The benefits you get from diversification globally override tax considerations. It has been a pretty clear ride up and is his favourite way to play Europe.