Daniel Straus

These past 6 weeks remind him of a quote from Lenin: "There are decades when nothing happens, and then weeks when decades happen." Between tariff announcements and then reversals, and sudden intraday shocks and moves in the stock market and in currencies, it's been an extremely volatile time. It's very cloudy and confusing. His ETF research desk has been inundated with questions.

On the whole, he's not seeing the market retrench entirely out of equities. Money flows are split almost evenly between fixed income and equities. 2024 was a year of bull markets all the way, a record year for ETFs flows both in Canada and in the US, driven mainly by demand for the Mag 7 and the S&P 500. 

There's still a lingering desire and wish for those growth stocks to continue driving as the engine for the economy. But we're starting to see branches of flows moving into low volatility equities and certain aspects of fixed income, as well as buffers and other strategies for capital preservation.

They're highly efficient, giving you incredibly diversified exposure sometimes to thousands of stocks all at once. Enormous liquidity. Market makers stand ready throughout the day to execute huge orders. Primary and favoured vehicle for large institutions that want to turn over billions of dollars on a dime. 

Incredibly low fees and very tight spreads benefit investors as a whole. Smaller investors can piggyback onto this world-class institutional liquidity built around the ETF ecosystem. People who've just sold their stocks often move into ETFs so that they can maintain some type of market exposure.

Canadian utilities, writes covered calls on ~50% of the portfolio. Use it if you have a neutral or range-bound view of the Canadian utilities market. If you buy near market bottom, won't participate as much in the snap-back.

If you see growth and capital appreciation on the horizon, use ZUT -- almost the same basket, but with no covered call overlay. Lower yield. Money works for you over the long haul.

Canadian utilities, writes covered calls on ~50% of the portfolio. Use it if you have a neutral or range-bound view of the Canadian utilities market. If you buy near market bottom, won't participate as much in the snap-back.

If you see growth and capital appreciation on the horizon, use ZUT -- almost the same basket, but with no covered call overlay. Lower yield. Money works for you over the long haul.

Buybacks are similar to dividends. A way for a corporation to return money to shareholders. The company just takes cash on hand from its operations and reduces their share count. The remaining shareholders see a little bit of a price increase and accretion of company ownership. It can insulate the share price from dropping or, controversially, to prevent large stock options from vesting. In theory, it's no different from a dividend.

Thing is, we live in the real world where there are things like taxation. Most investors would much prefer to see capital appreciation rather than income ongoing. 

You may find some if you search for "shareholder yield". Invesco partnered with some index companies in trying to understand shareholder yield as the core concept. Shareholder yield combines dividends and buybacks as the true signal for how companies return capital to shareholders.

Look in the US. There was one in Canada, but it delisted.

This goes to the heart of how these covered calls work. They hold a basket of stocks, and then just write call options for a little additional yield. If the underlying stocks experience any drawdown, you participate in that 100%. The extra premium yield you collect along the way does buffer you a tiny bit.

What'd you'd look for is some kind of put protection that offers some insurance against a downside fall. There's a whole slew of new products called "buffer ETFs", which have only 1-year time horizons or sometimes a bit less. They use both covered calls and put protection to try to neutralize the downside move. These are sophisticated products, so they're not for everyone. Instead, look at PYF.

Employs both puts and calls to provide some form of downside protection, though that's not always guaranteed. Sophisticated, complicated, very actively managed. In his experience, this type of ETF doesn't participate all the way in some of the selloffs.

Popular and fast-growing. Very actively, and transparently, managed. MER is quite low, which is important. If rapid rise in the market, you'll get only partial upside due to the covered calls. Think of it as a tool for yield, not necessarily market appreciation.

If there's been a selloff, entering a plain vanilla S&P index ETF is the best way to try to recoup your investment.

Caught a lot of attention from DIY investors who are sorting by yield. Has amongst the highest yields ever seen, ~14-15%. When you see a double-digit yield, ask where it's coming from. Here, it's through very aggressive covered call writing. Gives you high yield today, but very little growth going forward; a tradeoff. Looking at total return over the long term, almost always underperform ETFs that don't use covered calls.

Best way to use this one is in concert with other forms of investment that will participate in a market rise, such as ZEB.

Just the Canadian banks, no options, so will participate fully in a market rise.

 This one is good because it's ex-North America (so no Canada) instead of just ex-US (some Canada). With ex-US, it's inefficient tax-wise for Canadians because you get tax withheld when the dividends cross the border back to Canada.

These two are similar. VIU is larger and more liquid, fees are very low. Popular, as many investors want to sidestep the US-Canada trade conflict.

For investment vehicles that hold equities from international, developed countries, what kind of account to hold them in depends on a whole bunch of things. Consult your tax adviser whether withholding taxes might be foregone if you hold this type of ETF in an RRSP.

 This one is good because it's ex-North America (so no Canada) instead of just ex-US (some Canada). With ex-US, it's inefficient tax-wise for Canadians because you get tax withheld when the dividends cross the border back to Canada.

These two are similar. VIU is larger and more liquid, fees are very low. Popular, as many investors want to sidestep the US-Canada trade conflict.

For investment vehicles that hold equities from international, developed countries, what kind of account to hold them in depends on a whole bunch of things. Consult your tax adviser whether withholding taxes might be foregone if you hold this type of ETF in an RRSP.

Pays a slightly higher yield than cash-alternative ETFs. Gives you exposure to money market, but combines with other instruments to get a little bit of extra yield. A bit riskier than cash. Note that the chart will look funny.