Paul MacDonald understands why Canadian investors tend to favour domestic companies in their portfolios. The chief investment officer at Harvest Portfolios Group Inc. in Oakville, Ont., explains that the scale, dividend yield and familiarity Canadians get from our Big Five banks, leading insurers, integrated oil and gas giants, and diversified telecommunications companies make these stocks attractive.
“Call options writing allows an investor to exchange potential future appreciation of an underlying security, for a predetermined price and time horizon, in exchange for a cash payment,” says Alan Fustey, portfolio manager at Bellwether Investment Inc. in Winnipeg. “In this environment of uncertainty, elevated volatility is to be expected. A covered-call strategy offers benefits, providing additional upside from paid premiums. The design of the fund is to capture the largest, highest dividend-paying companies in Canada,” says Mike Dragosits, portfolio manager at Harvest.Covered-call ETFs have become more popular over the past decade. That’s because, which is generated by writing call options on a percentage of holdings in the underlying portfolios.
These are resilient sectors and companies, Mr. Dragosits notes. “Canadians continue to use [these companies’] products and services, recession or not.” He points out that investors are giving up some upside potential of underlying assets with call options written on them. That can happen if the share values rise significantly, exceeding the option strike price, resulting in the sale of those shares.making them a good option for retirees.
For example, he notes that income from call option premiums wouldn’t fully offset a 20 per cent drop in the value of an ETF’s underlying portfolio.