Q: My long term etf, HTA has just announced a distribution increase of approximately 7.7 %. How do they manage this as the underlying stocks have not increased their dividends anywhere near this % ?
HTAE holds HTA and uses leverage for enhanced performance ( up and down .) It borrows 25 % of the portfolio value to do this. What are the typical terms regarding such borrowing ? Is this liability reflected in unit price ? Is a liability of the etf provider or the unit holder ?
Any light you can throw on these questions would be appreciated. Thanks. Derek.
HTAE holds HTA and uses leverage for enhanced performance ( up and down .) It borrows 25 % of the portfolio value to do this. What are the typical terms regarding such borrowing ? Is this liability reflected in unit price ? Is a liability of the etf provider or the unit holder ?
Any light you can throw on these questions would be appreciated. Thanks. Derek.
5i Research Answer:
HTA sells call options on 33% of its holdings, and the call option premium enhances income. Tech has done well and this is also a factor in the increase. On HTAE, margin terms would be with the bank providing the financing, but would be fairly typical contracts. Rates would move with short term rates and currently are likely in the 6% to 7% range (we are estimating). The obligation is fully with the ETF and not the unit holder. The general impact of leverage is reflected by unit holder supply/demand but is not specifically reflected in prices. But interest charges would impact daily NAV (accrued).