Investment Q&A

Q: Hello 5i
In one of the recent questions it was said that you do not like covered call etf’s. I didn’t know that was the case. Maybe it isn’t, even i don’t know. I have concentrated my covered calls on American companies that i own. Also many uncovered puts. I have concentrated on the US because the premiums are much higher than on Canadian stocks. I have quite a few Canadian stocks, however. And i hate to see them languishing and unproductive. I have therefore been thinking of a way to make some money on them. The premiums are so low that it doesn’t seem to be worth the effort. But, covered call etf’s would be easier. I don’t know much about them, however. I wonder whether you might provide some information and some pros and cons. Whether you like the idea or not.
Thanks for the excellent service.

Q: Hello
There are Youtube Investment Advisors pushing the theme of income investing. Nothing else matters, just the income. Not taxation nor ETF price action (Capital Value).

Given this ETF Theme of Covered Call Strategy (some leveraged 25%) are paying such a high distribution, in the right set of market events (down excessive period) can this strategy trade itself to zero?

They are certainly not making 15% income from dividends and call writing. So capital erosion must be the outcome in today's market.

I was holding covered call etfs from BMO during Covid crash. The strategy performed worse, even after distributions, than straight equity holdings. It was a terrible experience as there was zero downside protection and the strategy seemed to accentuate the drawdown.

Given the current environment (more downside in my opinion) are these ETFs setting investors up for an ugly awakening? ( distribution cuts, return of capital (One's own money), price decline and slowness to recover when markets come back)

Thoughts

Q: I am a vlaue investor, 76 years old, good pension. 43 stocks, 16 ETF's including the above covered call ETF's. I do have some growth holdings (IWO, LNF, WSP).All are doing well except ZIM and SYZ (not worried). My question is the covered call holdings are 10% of my portfolio. Is 10% too much? I do enjoy the $650 a month dividends which have been consistent for the past five months.
Thank you
Stanley

Q: Any Canadian alternatives to JEPI?

Q: Hello 5i
I hold the above covdered call ETF's as well as at least two individual companies from each (from before I bought these). also have over 10 ETF's that are not cover call. I have 51 positions with 49 stocks. These have performed well during this period of unrest. No they do not hit the high notes but not even close to bottom notes either but steadil;y increase in value aside from the dividends. My question is: with these new covered call ETF's at 12% of my investing portfolio (not including GIC's) might this be considered too much? Each is between 1.5% and 2% of the portfolio as are most of my holdings. The dividends are great and have kept up for the last three months. These also hold great companies that I would hold if I had room (and funds to buy them!) as a value investor. Please take as many credits as required.
Thank you
Stanley

Q: Hi, Would ZWC’s payout be considered eligible dividends? What about the other BMO covered call etf? Thanks.

Q: Hello 5i,
I am a value invester with a mix of equities and ETF's. I have done well with VGT and am up $8,000. As I look for dividends I am looking to sell VGT and buy ZWT. Also exchanging XHYy for ZWH, XTR for ZWC and VE for ZWE. Some are underwater but not by much. $75,000 is involved altogether with these exchanges. Do these changes make sense or should I just leave things as they are. The difference in dividends is nice to have (an extra $300 or more a month) but not really needed.
Stanley

Q: Hello,

I own the whole list (weights 1% to 2%) thinking I was being diversified but maybe went too far.

1) I am on the right track to reduce to about 3 names?
2) Which names optimise income?
3) Alternative names that I might have missed?

Many thanks!

Q: As concerns ZWC vs ZEB: I had assumed that the former's high return-of-capital component were accounting-speak for capital gains from the sale of covered calls - essentially, a way to defer capital gains taxes until the position were closed. So what's not to like about deferring capital gains taxes, particularly for an stable, NAV-appreciating, income-oriented instrument like ZWC, which we would expect to hold for a long time? I.e., what am I missing about why lower return-of-capital should be 'better' - or, more generally, is there a threshold above which high return-of-capital creates some sort of weird risk?

Q: Pipeline and utility stocks having increased in price recently. What would you think about buying one of the ZPAY etf's for the dividend replacement of the utility and pipeline stocks. And buying the pipeline and utility stocks on a pull back. And which ZPAY etf would you recommend?

Thanks
Brian

Q: My wife has $75,000 to invest in her TFSA, in which she is also holding 100 shares of TD Bank along with 100 shares of TD in an RSP. She is retiring in a month has a defined pension plan, CPP, OAS. But she is still looking for dividend income either monthly or quarterly to supplement her income.
We are looking at going with "Beating the TSX Portfolio 2022" but also looking at ZWU and ZWC which look like they could bring in more income but higher fees. What are your thoughts? Thank you.
Brian

Q: What are your thoughts on covered call ETFs? And if you like them, which would be your favourite(s)?

Thanks guys,

Dave

Q: I own ZWU in an RRSP account. Today's market price is basically the price I paid to buy it. I own it for the healthy monthly dividend it pays (7% annually). With interest rates about to increase this spring and at least 3 interest rate hikes expected this year, how would those rate hikes affect the price of ZWU? Would I be better off selling ZWU and then investing the proceeds in ZWC which is more diversified in its holdings? My investment time horizon is 10+ years. Thank you.

Q: I'm replacing ZWU and ZWC since I would prefer to hold stocks at this point. What 5+ stocks would you recommend to replace ZWU and ZWC each. Thank you.

Q: For safety ZWC or HDIV? THX. JAMES

Q: Why did this stock go down so much yesterday (Sept. 20)? Is this cause for concern?

Thanks,

David

Q: Why the strong differences in type of assets (cash) held between ZPAY and ZWC? Are they not trying to do much the same thing?
And would you remind me of the tax implications on ZPAY dividends when held in a RIF
With thanks

Q: Hi 5i:

Can the Price to Earnings ratio (P/E) be used to determine the valuation of these yield plays or should I be looking at the Net Asset Value (NAV) instead?

Using P/E they rank cheapest to most expensive as: DFN, FIE, ZWC and EIT.UN. Is that accurate and if not, how would you rank them, cheapest to most expensive?

Thanks in advance,
Greg.

Q: If a person was looking for income only with a lesser amount of capital gains what are your thoughts on these candidates for 20 % of an overall portfolio ?

Q: If these two exchange-traded funds (ZDV and ZWC) have essentially the same holdings, but ZWC is a covered call, then can you please explain the difference in the dividend? ZDV has an annual dividend of 4%, while ZWC has an annual dividend of 7%. Can you also explain how the covered call feature works? Thank you.