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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Hi Peter, Ryan, and Team,

Perhaps you could shed some some light on this ETF, as I believe there's a serious pitfall with the product. I sent First Asset an email yesterday, wondering about the so-called "reinvestment" that was "paid" on Dec. 28, 2017. I refer to it as 'so-called' because this $1.63 per share "reinvestment" does not give you cash, nor does it increase your number of shares! In other words, it appears to do nothing for me.

Here's the email I sent First Asset:

Hello,

I purchased 1395 shares of TXF on July 21, 2017. I see that on Dec. 28, 2017, the fund "reinvested" $1.63 per share. This would, in my case, be an amount of 1395 X 1.63 = $2273.85.

My broker, Scotia iTrade, increased the adjusted cost base (book value) of this fund, so I now show a slight loss when not considering the cash distributions received on Oct. 4, 2017, Jan. 4, 2018, and Mar. 29, 2018.

Here are my questions:

Should I see the amount of $2273.85 on the statement from my broker?
If I were to sell my shares of TXF today ($16.69 at this moment), would I receive 1395 X 16.69 = $23282.55?
What happened to the "reinvested" amount of $2273.85?

I look forward to an explanation of the above questions.

Here's the response from First Asset:

Hi Jerry,

The $1.63/unit amount is a non-cash distribution that was reinvested in the fund, which is why you see an increase in the Adjusted Cost Base. To answer your questions:

The amount of the distribution should be reflected on your statement but only as an increase to your Adjusted Cost Base. It wouldn’t increase the amount of units or the market value of your position in TXF.
If you were to sell your shares based on a unit price of $16.69 you would receive approximatively (1,395 x 16.69) – Adjusted Cost Base (including the $2,273.85) minus any other fees your broker my charge you.
The amount of $2,273.85 has been added to your Adjusted Cost Base.

I realize that 5i doesn't really care much for the covered-call aspect of TXF, but I was prepared to live with that. However, I certainly didn't expect the ACB (book value) to increase by the amount of this non-cash distribution! How does this help the investor? Am I correct in my assessment of TXF?

What would you replace TXF with to stay in the same sector, and one where the "reinvestment"is actually paid to the investor?

Thanks in advance for your guidance. I realize that this is a long and detailed question and your answer would be helpful to others. Please deduct as many question credits as you deem necessary.
Read Answer Asked by Jerry on May 04, 2018
Q: I presently have no healthcare or tech holdings in either my RRSP, TFSA or cash. Am retired,like dividends, but can take some risk.

Looking at having 10% in each sector with HHL (50%),CSH.UN (25%),GUD(25%)in healthcare and TXF(50%),ABT(25%)PHO(25%) in tech.

What do you think of this approach and the individual holdings?

Where would you put each one ( RRSP,TFSA cash)?

Thanks Derek


Read Answer Asked by Derek on August 14, 2017
Q: Hi Peter, Ryan, and Team,

I'm a bit confused with your answer to Florence about TXF. Your answer said "This one overlays 75% of the portfolio with call options......".

However, according to the First Asset website: "Distributions are paid quarterly and no more than 25% of the portfolio's securities will have call options written upon them at any given time".

If no more than 25% of the portfolio have call options, doesn't this strategy mean that an investor wouldn't be giving up as much as your answer indicates? Am I missing something here?

Thanks in advance for any clarification.
Read Answer Asked by Jerry on July 18, 2017
Q: Hello Team 5i, I'm scared about a possible Trump Dump, not knowing what he will say/do next.....so staying away from Single Stocks, but do not want to stay out of Market. Hence looking at ETFs, and would appreciate your Ranking of these.
Read Answer Asked by Austin on March 16, 2017
Q: Good Morning: My question is about the Horizons ETF listed as TXF. (It did not show up in the drop down menu.) The full name is First Asset Tech Giants Covered Call or something like that. I know it is Cdn. hedged which I am fine with and it uses a covered call strategy to optimize returns. Do you have an opinion on this ETF in regard to management fees (they do not seem excessive to me for an actively managed fund), performance, sector and weighting within a portfolio. I don't own a lot of big tech names directly (small holdings in Alphabet, Corning, Intel, Qualcomm and Apple,all of which are in this fund) and wanted some additional exposure in this sector. I already have a small position in this ETF (less than 1%) and would like to double it. Thanks for your input. don
Read Answer Asked by Donald on May 31, 2016
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