-
iShares S&P/TSX Capped Financials Index ETF (XFN)
-
BMO Equal Weight Banks Index ETF (ZEB)
-
Hamilton Canadian Financials YIELD MAXIMIZER TM ETF (HMAX)
She leans more on the conservative side. Combined, we already have a full position in RY and other financials contained within ZLB, CDZ, ZWC, as well as AD.UN.
In the current declining interest rate environment, does HMAX fit the bill? As interest rates decline, what impact will this have on the share price? Should I assume that the capital appreciation will be fairly minimal, while the dividend maintains roughly where it is now?
I appreciate your help...as always.
Steve
The general outlook for financials as rates decline is that interest income will decline, but non-interest income will increase by a greater proportion through increased underwriting & capital market activity which has a greater marginal benefit leading to positive growth. HMAX will capture some of this potential upside, however it's covered call strategy could give up some of these returns. HMAX is currently writing calls on 50% of its portfolio, so if Canadian financials see a broad rally, these calls will be exercised at a higher rate and the income vs. capital apppreciation will be somewhat offsetting. As a result, HMAX will not move entirely as expected when rates decline due to it covered call strategy. The dividend will be somewhat volatile especially as HMAX targets a 13% yield and it currently pays 14.5%, which is dependent on the effectiveness of the covered call strategy. For general Canadian financials exposure, one could look at XFN or ZEB.