BMO Covered Call Utilities ETF (ZWU.TO)

A Covered Call ETF. This is a mixed bag of traditional utilities and pipeline utilities. A steady type of name and you are going to get extra yield from the covered call writing. An interesting name. It probably won’t give you the growth he is looking for in his portfolios. If you are in an area where markets are moving higher, you want to be in the underlying securities, not a covered call strategy.

He loves ZWB-T and it is a great way to hold the banks. But he sold out, taking profits, putting it into ZWU-T. This is a lot more interest rate sensitive. ZWU-T will outperform in a market correction as utilities are more defensive.

Good for a TFSA?This ETF holds a range of utilities and pays an excellent return. Essentially you are buying a portfolio of Canadian utilities. If you want a nice cash flow in your portfolio, it gives you diversification.

The .U units are in US$ and not a lot of people are using them. Its liquidity is that of the underlying securities. The market maker creates more units as required. There is no need to worry about liquidity just because the ETF is thinly traded.

There are 20 securities in this with roughly 5% in each. Is 10%-15% of that too much to have in one Security? This pays a very nice yield. Originally it was just Canadian utilities, but now they have some US stuff as well. Utilities are very subject to interest rate changes, and is something to keep in mind. He doesn’t know about going with 15%, but you are probably fine with 5%-10%. With a possible increase in interest rates, you might want to wait a few days.

He likes it and holds it in a dividend fund, using it in a defensive way. It has a covered call overlay. Unfortunately the premium from the covered call strategy is less than desirable because volatility has been so low for so long. We are seeing a little sell off because of a sensitivity to interest rates. If it falls another couple of percent he will go back to accumulating it.

A Covered call ETF which clients gravitate to. ZUT-T is the non-covered call overlay. Over the very long haul you may get higher returns with ZUT-T than ZWU-T. If you need the yield, then there is nothing wrong with the covered call ETF, ZWU-T. Consider XIC-T also.

80% Canada / 20% US. It is not a fixed income replacement. He is not adding to his holding right now. He loves it as a yield play and would add more if we sold off more aggressively. He has half a position.

Had been avoiding the utility area, because he saw the temper tantrum the market went through with the thought that rates were going up in the US. He’s come to the conclusion that interest rates are going to stay low for a lot longer than anticipated. Utility yields are quite attractive, and it is almost impossible to get those kinds of yields out of the fixed income market.

He would be very cautious about certain ETF’s that are loaded with derivatives, etc. They may not perform the way you expect them to. Also, the market doesn’t just look at where rates are going in the next year. He would not be a big fan of a Covered Call ETF.

Covered Call in 60% of shares. It is in Utilities. A pretty good yield. He is pleased they expanded into US utilities. Unfortunately they do badly in increasing interest rates. He would not want to think rates were going up too fast. Premiums for options are quite low right now so the covered call feature may not be doing as well as previously.

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.

They write call options against utilities. It is an interest rate play. Once rates started to go up, utilities are vulnerable and so are covered calls. They may not go up for a while yet in Canada.

What is the downside risk? This has 80% pipelines, telcos, utilities in Canada and 20% in the US. Generally utilities, telcos and pipelines are big dividend players. This is yielding about 7%, a very nice yield, but extremely interest rate sensitive. In 2013, when the US Federal Reserve was first talking about raising rates, we had the taper tantrum. This ETF went down pretty hard, but then came back up when the Fed backed off. In 2015, there was a big drop because of pipelines, when oil prices were coming down. You have to understand what you are holding.

Utilities, pipelines and Telco’s. 80/20 Canadian to US. It fell on anticipation of interest rate increases and oil dropping early in 2016. You have to be careful because rising interest rates and falling oil prices are both negative for it.