Q: Bmo has an etf zwk that pays around 6% and some new funds that are target cash flow (zwk-t) that say they are looking for 12% . I know they are both covered call but is one more leveraged ? What is your take on these target funds ,with yields over 10% they look interesting
5i Research Answer:
We are going to need to narrow this down a bit. BMO has more than 240 different funds. Leveraged funds of course will enhance returns, but also losses. We are comfortable with them, generally, but investors need to understand the risks. Covered calls offer high yields, but often seen net asset value decline as they pay out dividends. ZWK focuses on US banks. Covered call funds will lag the market in a rally, and provide a bit of downside protection in a correction. But they are equity funds and can go down a lot if the market cracks. It is important to consider them as 'equity' products and not fixed income. Many investors get enticed by high yields and fail to recognize market risks with these products.