Q: From an income perspective, could you provide your thoughts for a retiree, non-registered and % holding you may or may not be comfortable. I am somewhat hesitant on these high yielding CC ETFs because I can't help but think you are eventually eroding principal at some point because if the options are exercised you will lose the upside. thanks
5i Research Answer:
The covered call ETFs can be beneficial for retirees or those seeking income, however, they do come at the expense of capping upside potential. Often times, these ETFs will need to issue its distributions through return of capital in the event that the market is moving materially higher and its call options are being called away. BANK also uses 25% leverage, which in flat markets can be useful, the leverage works against the ETF to the downside on big declines (a 5% decline requires a 5.3% increase to breakeven, but a 10% decrease requires an 11.1% increase to breakeven, thereby increasing the gap needed to breakeven).