Q: Could you comment on the relatively new option-based US treasury ETFs HBND and HPYT. The yields have caught my attention, together with the underlying security of US treasuries and the possibility (?) that rates have peaked. Do you see these as being suitable up to around a 1.5% position in an RSP, and is there US tax withholding on the distribution in an RSP? How do these compare to TLTW (I would prefer to buy a CDN$ ETF rather than take the hit on conversion) Do you have a preference, and would you buy today? Note that I already hold about a 2.5% position in ZLC, which is up marginally.
Thank-you
Thank-you
5i Research Answer:
We have recent comments posted on HBND. HPYT invests long-dated US treasuries and writes covered calls on 100% of the portfolio. Indicated yield is very high and the fund should benefit if interest rates start to decline. That being said, it is a new fund, and performance is unproven. It did rise 3.85% in its first month. Assets are only $5M so we would not endorse it on size alone right now. There is no withholding tax on US fixed income Canadian based ETFs. Call option premiums are treated as capital gains. They are very similar to TLTW, especially HYPT with its long-duration focus. TLTW of course is much bigger with a longer performance history (one year -6.14%). For a Canadian fund today we would prefer HBND, with $55M in assets.