BMO Covered Call Utilities ETF (ZWU.TO)

[Caller asked about BCE-T.] He prefers ZWU-T instead of just paying individual stocks. No one knows which one is going to do best. You get diversification. He would step into it because it is defensive.

ZWE-T vs. ZWU-T vs. ZWB-T. A 100% stake in anything is generally a bad idea. These three give you 2/3rds of your portfolio seeking dividends in Canada. He would add ZPW-T for US put writes. ZWH-T would give you a broader exposure. He would underweight Canada.

High dividend covered call telcos and utilities, 70% Canadian, 30% US. He really likes it. These tend to underperform during rising interest rates. Banks do a bit better (ZWB-T (covered Call Banks)/ZWE-T) in this environment. He likes them paired with ZWU-T. He owns no Canadian banks right now.

ZWB-T vs. ZWU-T. ZWU-T is high dividend covered call, 70% US. It is very interest rate sensitive. ZWB-T is banks and so when interest rates are rising they tend to do better. They are counter balanced so putting money into both is a good pairing, generally. He owns no Canadian banks because he thinks they are expensive right now, however.

Do you like the covered call? Not a huge fan, but it’s difficult for the individual to write covered calls because the ETF providers are in the way. Expensive at 0.71% MER, but pretty good. If interest rates rise accelerates you are probably not going to get a lot of performance. Be careful. For income, you could go to a lot of other areas. Timing better when there’s a sell-off in the market. Timing on this isn’t perfect, if you hold it there is nothing wrong with it.

It is one of his favourite ETFs to play high yielding, less correlating exposure. Utilities, pipelines and telcoes, 30% US, 70% Canada. The yield is in the 4.5%-5% range. It has a covered call overlay to enhance the yield to something over 6%. Seasonality is a factor. Over the next couple of months we will see interest rates tick up a bit and ZWU-T is interest rate sensitive. Underfunded pension plans are off the board now and should have a slight negative on ZWU-T, so hold off before nibbling on it.

High dividend paying utilities and telcos, 30% international. He is not adding here. He did so a couple of months back. He likes the strategy. In a market downtown, everything falls but utilities fall a lot less. The distribution could change over time due to volatility of its holdings.

Like any utility, interest rates have beaten them up, but this ETF pays a decent dividend and holds some U.S. utilities. He likes this, especially with a covered call.

ZWC vs. ZWE vs. ZWU. ZWC has a lot of the good dividend payers with a covered call overlay. ZWU is lower risk than ZWC, as it doesn’t have exposure to energy and financials. If interest rates go up in a big way, ZWU will underperform, and could easily go down 3-5%. The dividends for these are safe. ZWU is attractive from a defensive standpoint. ZWE has exposure to the 3 biggest country markets, very few financials, a currency hedge, little Italy exposure. It could fall 5-7% in the next months, and then it would be a pretty decent buy.

Safe, long-term income? Some diversification, US and Canadian utilities. Good yield, but very interest sensitive, so beaten up a bit now. Be prepared for softening as rates go up.