Investment Q&A

Q: Is the reason this ETF has declined by approximately 8% this year because of its weak sectors of the rails and telecommunications or is there something fundamentally wrong with the structure of the ETF ? I hold it in my RRIF where yield is important to me. Thanks. Derek.

Q: Hello!
Now that I’ve reached the age of RRIF withdrawals, I’m looking more closely at income and therefore at covered-call ETFs.
I understand that these instruments don’t fully share in the upsides, but the income of ETFs like EIT, TXF and ZWU is pretty solid.
I’ve also been looking at UMAX its unbelievable 14% yield, but I also see that the unit price has declined quite dramatically over the last few years.
So questions are, how do you feel about these ETFs for income? And if you’re okay with them, which would you recommend?
Thanks for all your help
Michael

Q: This question will likely apply to any of the covered call funds. In your answer to Greg on Oct. 21, you stated that the yield on this fund was 14.02% but the one-year return was only 4.15%. The fund cost approx $13.06 a year ago and now sells for approx $13.70, which means that your capital has grown by 4.15%. But over that year, dividends totalling $1.92 per unit were received (for a yield of 14%). Doesn't that make the total return on this fund closer to 18%? I assumed that if the unit was worth the same or more than I paid for it in a year, the monthly dividend would not result in any decay and that this amount should be added to the increased value of my purchase. If this were a single stock paying 5% and the stock increased 5% isn't my total return 10%? Is a covered call fund calculated differently?

Appreciate your insight.

Paul F..

Q: I have been asked by a 23 year old to provide suggestions for when she initiates her FHSA.

I immediately thought of the banks , which I believe is the premium Canadian sector for long term growth, growing dividends , and safety. I would also recommend a more Canadian diversified security (UMAX ) for her next purchase. Of the above banking securities ( all owned between my cash, tax free, and registered accounts ), which would you start with ? Would you be comfortable with UMAX as second pick ( admittedly hasn’t done much but provides diversification into large cap companies and a good distribution yield). I am only interested in Canadian securities at this point. Should I be comfortable with this approach? Any thoughts would be appreciated.
Thanks. Derek .
Any

Q: What do you think about UMAX in a TFSA to generate monthly tax free income. Are there any issues related to ROC with this ETF in a TFSA.

Q: Can you please suggest US equivalents to these two CDN covered call utilities etf's ?
Thx

Q: Two part question:

What are the major differences between these two covered call utilities etf's? Wondering why/how UMAX has ~2X dividend yield?

Would it be possible to suggest equivalent covered call etf(s) for US market?

Thank you.

Q: Hello, I am turning 60 in January, while I still work, I would love to retire in a couple of years, would it be a reasonable portfolio to migrate my portfolio to a more income focused, covered call strategy portfolio, in general terms, I know you cannot get personal. I think the vast majority will be broad based ETFs with maybe 25% using leveraged based ETFs. From what I have seen, the BETA for these funds seems to be a lot less than there non covered call cousins.

Q: UMAX = covered call, UTES= covered call + 1,25% leverage. In a downtrend, UTES would probably go down around 25% more than umax (ex -10% vs -12,5%...) and ZUT.Since the markets are presently high +the economics, do you believe that there could be a significant probability of a downtrend in 2025 and in such case ,would it be safer to sell UTES for ZUT now (or another stock), in order to reduce the risk ?

Q: Hi,

I’m a real estate investor and I love monthly distributions—HMAX and UMAX felt a lot like collecting rent. However, after realizing a significant portion of their payouts is ROC, I’m exploring alternatives that offer high dividends, low ROC, DRIP eligibility, and potential capital appreciation.

My horizon is 20+ years. Could you suggest 2–3 ETF ideas in Financials and Utilities that fit this profile in the Canadian market ideally or global.

Thanks,

Q: Hi 5i Team,

I'm interested in your views of buying something like UMAX using a margin account. It seems like the math works out provided a particular financial institution has a reasonable margin rate. I'm wondering if there's an angle I'm missing here. If not, is UMAX a good option for this idea? Or something else? I need more utilities and industrials in my portfolio so this would also help add to these.

Thanks as always for this wonderful service!
Lisa

Q: One of these will have to go as I need the funds. Which one, or should I just decrease each one. Thanks and greetings. Peter.

Q: Hi, what is your preference in order of these ETFs UMAX, ZWU, ZWC or is there other covered calls that you prefer. Please place in preference order. Also in which account type would each be best suited for including your picks.
Thank you

Q: I am relooking at the Fixed Income portion of my portfolio. The bulk is bond funds, but it also includes a few GIC’s and a HISA. But what about Preferred Shares, EIT, FIE, TXF, and UMAX, all of which I hold STRICKLY for their distributions? I am currently grouping them in with my dividend stocks but maybe they should be included in Fixed Income? EIT and FIE have paid out the same distribution for ten plus years. Thanks.

Q: Hi. would like to know in what account (RRSP,TFSA,NON-REGISTERED) would be best suited for these ETFs and your best to less favored in order for each account type please. ZWB, HCAL, ZWK, ZWE, ZPW, UMAX, HYLD, HDIV, HDIF, ENCC. Thank you

Q: Would I be correct in concluding that Trump's on again off again tariffs are good for covered call ETF's ? When he announces a tariff the market takes a dive. When he backs off the market rises ..... Under those conditions can not the call writers charge a higher premium ? I've noticed GDXY yielding 43% was at 52.9% the previous month. And SLVO is yielding 23.2% . Even the US treasury ETF HPYT is yielding 20% .....Even boring old UMAX a utility covered call ETF is yielding a hair under 16% ..... Do you see a relationship between the amount of the premiums covered call ETF's can get to " Yeah I'm going to tariff the snot out of you " to " Nah, i was just kidding " ..... market swings ?
Basically I'm wondering if Trump is the perfect storm for options .....

Q: I target Utilities holdings at 8-10%. Is there enough difference to hold both ZWU and UMAX as my only Utilities holdings?

Thank You

Q: As a retired mainly income investor am I okay to keep holding these ETFs in the current market?

Q: Thinking about Martin’s question ( March 19) and your response, specifically on ROC. I own UMAX in a RRIF. I Look at its 14% yield as more than enough to cover the approximately 6% ( and rising) mandatory withdrawal, thus not negatively affecting my cash flow. I also see the ROC as lowering my unit price and thus the mandatory withdrawal amount. Is my thinking right on this ? Thanks. Derek.

Q: Hello, looking at UMAX, the price went from 16$ to 14$ in less than 2 years. Is it because the NAV is going down because of the dynamics of covered calls? Sould we expect a steady price erosion for the foreseeable future? It’s nice to have 13+% annual distribution but if we have a corresponding capital loss, I am not sure it makes sense. Can this ever be a long term hold? Thanks.