Horizons Exchange Traded Funds Inc. (Horizons ETFs) and AlphaPro Management Inc. have launched the Horizons AlphaPro Enhanced Income Financials ETF (HEF).The fund, which offers access to a covered call strategy on Canada’s largest financial sector stocks, begins trading on the TSX today.
The fund will invest primarily in a portfolio of equity and equity-related securities of Canadian companies that are primarily exposed to Canadian banking, finance and financial services sectors. They are among the largest and most liquid issuers listed on the TSX in that sector. The aim is to provide unitholders with exposure to an equally weighted portfolio of Canadian banking, finance and financial services companies, and monthly distributions of dividend and call option income.
To mitigate downside risk and generate income, HEF will generally write slightly out-of-the-money covered call options on 100% of the portfolio securities. The level of covered call option writing may vary based on market volatility and other factors.
“Historically, a covered call writing strategy on a portfolio of North American stocks has offered a much less volatile return profile than the underlying basket of stocks alone and tends to outperform in bear markets or moderate return cycles but lags in bull markets,”said Eden Rahim, vice-president and portfolio manager with JovInvestment Management Inc., which will act as investment advisor to the fund.
“With Canadian financial stocks, the potential for income from the coveredcall writing in addition to their dividend yields should make HEF an attractive yield alternative while still allowing investors to participate in the modest upside growth potential of these stocks,” said Rahim.