BMO Covered Call Canadian Banks ETF (ZWB-T)

Reliable for income up until last fall and the TD fiasco; worried about contagion among Canadian banks. Now looking at this again. Not buying just yet, still looking at it. MER is 0.7%.

That's a very specific question about one investor and their financial circumstances, risk tolerance, etc.

If we're going into an environment of slower economic conditions, then ZWU is likely to do a bit better. This would be due to the Canadian banks pulling back. He loves them both, great exposures. A bit concerning if all a retiree's portfolio is in just those two vehicles; there's not much diversification either within or outside of Canada.

Consider adding ZPAY, which gives you some US exposure to big banks and tech, and with a lower risk profile.

He doesn't see a hard recession coming, though any recession in Canada will be harder than in the US. In a hard recession, Canadian banks can easily fall 20-30%. A lot of the rally in recent months has been the recognition of aggressive rate cuts by the Bank of Canada. A lot of that's already in the market, and you have more downside risk than upside potential in terms of the next year or two.

That doesn't make it a bad ETF, but the question is what are you going to put your money in to generate the same kind of yield? He'd suggest considering a tilt more toward ZWU. This would give you diversification, plus let you keep your high-dividend yield with tax-friendly exposure for Canadian taxpayers.

Covered calls portfolios have underperformed. Financials are fully valued after a big, recent run. He suggests buying part of this and part of an equal-weight bank ETF.

A put/write covered call income-focused strategy using options can generate extra income. ZWB is covered call banks. If you're bullish on the market, ZWB will give you more upside than ZPAY. If you're conservative on the market, and you think there's going to be more volatility, ZPAY will do better for you.

Right now in his dividend fund, he owns ZPAY but not ZWB. 

Both hold financials,but ZWB uses covered calls. HMAX has performed a little better and offers a little more yield. ZWB writes only half the securities, so it takes in less yield, but gets more upside capture. The price return is 11% on ZWB in the past year vs. HMAX's 6%, but the total return is close. However, ZWB pays you you more of a yield. nearly 7%, but gives less growth.

Different types of return of capital. The difference tax-wise is that when a strategy is giving you a certain yield, that they're not earning, they're giving you back your own money. That's the one that's dilutive to your net asset price. That's not what happens in this ETF.

If the underlying ETF is generating dividends and incremental income on a covered call overlay, and paying those out, it's not an erosion of your income.

Sometimes, there has to be a tiny bit of ROC when very recent investors to a fund are owed their dividend, but their investment hasn't yet had enough time to generate what they're owed. So there might be a small ROC in the interests of fairness to all unitholders of the fund.

You need a higher return than a bond is going to give you today to keep up with inflation and grow your savings. Alternative ETFs such as ZWU, VCNS, ZWB, ZWC, and PJAN are what's needed to protect your portfolio, rather than conventional bonds. 

These are what you need to generate the income you'll need for retirement, to get a real return on your investment, more than just protection of principal.

Good way to get exposure to Canadian banks. Lower interest rates will be good for Canadian banks. Excellent time to invest in this time. Would recommend holding product for the long term. 

Popular, high distribution yield. The "W" in the ticker symbol stands for option overwriting, so a covered call ETF that writes call options on 50% of the portfolio. Gives you more yield in the present, but diminishes upside participation in a growth market.

ZEB is an equal weight of the 6 Canadian banks. Very simple, fees have been cut. Over the long haul, outperforms ZWB.

To choose, he asks clients about yield requirements and time horizon.

Basket of Canadian banks. Getting the yield from the banks, and overlaying an option premium on top of that. With the covered call, there's the risk of the ETF portfolio being struck out of its holdings too early. If you need the income, then a covered call strategy may make sense. If you don't need the income, don't get attracted by the yield itself.

Often the underlying securities perform better than the ETF. See ZEB.

If he was going to own national banks, he'd most likely own RY or NA. And if not, then the ZWB strategy is a good one; covered calls give you more upside; yield's around 7.5%; pretty good income stream.

Not a ton of growth in the Canadian market, and not a ton of growth in Canadian banks. Own them for the income more than upside growth.

He's been using this to substitute very low interest rates for years. He buys this consistently for years, but recently sold it because with interest rates it's better to buy T bills or ZEB.

Bank stocks with an overlay of covered calls, which gives you a pretty tax-efficient yield of 7.4%. Canadian banks have been recovering a bit. Especially with rates moving down, dividend payers should improve a bit. 

Investors are attracted to the yield. The buffer zone of the yield can minimize volatility, however you'd get a better total return just owning the underlying banks. Makes sense if you need the income, but you're paying that MER and total return might be less.

He's not familiar with the Brompton strategy, but can only surmise that they're writing calls at the money, rather than out of the money. Or they're issuing return of capital to push the yield higher, until something goes wrong.

Depends on whether you're looking more for growth (individual banks) or for income (ETF). Also depends on what bank you're looking at and your timeframe. The covered call generates a bit higher income, but that could limit upside a bit if banks are running up.

Recently, TD and BMO have disappointed. Might be a buying opportunity.