Stockchase Opinions

Larry Berman CFA, CMT, CTA Covered Call US Banks ETF ZWK-T HOLD Jul 25, 2022

Broad basket of US regional & National banks (5% weighting to each name). Question is how much exposure investors want to banks. Low dividend rate, not as high as Canadian banks. Not a good investment for someone in their 80's.
$26.720

Stock price when the opinion was issued

banks
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BUY

0.72% MER good.
Fundamentals of banking industry improving.
Would be a good time to buy given share price.
Lots of risk priced in.

BUY ON WEAKNESS

Believes challenges remain in US banking system with higher interest rates.
Would wait to buy as bank shares fall even more.
Quality names in top US banks. 


BUY ON WEAKNESS

Hard economic landing will not be good for US banks. Would be risky if economy slows down. Would not buy. Wait for markets to fall before investing. 

BUY ON WEAKNESS

Would wait to buy on weakness. Economic hard landing in the horizon. Wait for impact of interest rates to be felt. 

WEAK BUY

Yield gets up to about 10% with the covered call overlay. Likes US banks, cheap relative to 5-10 year history. If economy continues to recover, banks should be there. Last 3 months, this has returned 17.5%. 

Are you looking for income, or do you just want exposure to US banks? Makes sense if you need the income. He'd argue that you'll get a better total return owning the underlying shares, or an ETF of US banks, instead of using the covered call strategy.

BUY

Likes covered call ETFs on banks and dividend payers, not tech. He prefers BMO ETFs, because they run the covered call on 50-60% of the stocks, so you still get the upside on the balance. ZWK pays around 10% dividends, but remember you don't enjoy the tax credit in Canada on these American banks

WEAK BUY

Bought this to enhance gains, but has really enhance losses. A stinker. The Silicon Valley bank collapsed hit the entire US banking sector, but this sector is a core holding. The ZWK yield remains good. He's averaged down on this instead of dumping it. Disappointed, though.

BUY

Good yield with covered call strategy. Currency exposure a concern, but likes Canadian banking sector. Expecting strong earnings going forward. Housing pressure with renewing mortgages a concern, but overall a good product for long term investors. 

DON'T BUY

Despite being better diversified, US banking space can be more volatile than Canada's. Because of covered calls, won't achieve as much capital growth as from ZBK or ZUB. As well, consider some of the active options as offered, for example, from Hamilton.

WAIT
US financial ETF for a retiree.

ZWK is one to look at; for a hedged version, look on the BMO website. But at this point, he'd rather have broader exposure than switching from global to US. Look at ZPAY.