Summer Sale
50% off Premium Yearly
Opinions Mike S. Newton, CIM FCSI
BMO Covered Call Canadian Banks ETFZWB.TOCOMMENTJul 03, 2015
Mike S. Newton, CIM FCSIStock price when the opinion was issued
As of Jun 22, 2026. Market Open.
You might be interested:
Our favourite covered call ETFs involve underlying assets that have a history of appreciating over time. For that reason, we like is the BMO Covered Call Canadian Banks ETF (ZWB). It has a 7.5% distribution yield, a higher AUM of $2.9B, and over the past 10 years it has returned 8.1% annually with distributions reinvested.
For investors seeking monthly income, covered calls can be a good approach, however, for the average investor we do not typically like the cap on price appreciation that covered call ETFs have, and for an uptrending market, we would prefer to own the underlying assets outright rather than covered calls.
Unlock Premium - Try 5i Free
Canadian banks are a core holding for him. Covered call boosted the yield in his portfolio.
John Hood;fill-opacity:1;'/%3e%3cpath%20d='M31%2018.6001V30H8V18.6001L14.1334%2022.4334L19.4999%2014L24.8669%2022.4334L31%2018.6001Z'%20fill='%23EE5432'%20style='fill:%23EE5432;fill:color(display-p3%200.9340%200.3310%200.1956);fill-opacity:1;'/%3e%3c/svg%3e){kind=small}
Premium contentOur PAST TOP PICK with ZWB has triggered its stop at $17.50. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 6%, when combined with our previous recommendations.
Premium contentWe reiterate ZWB as a TOP PICK. This low MER ETF holds equal weighting of the six big Canadian banks, which offers a good yield in itself. Layered on top is a call option selling strategy that further enhances the yield. We continue to recommend a stop-loss at $17.50, looking to achieve $22.00 -- upside potential of 20%. Yield 7.4%
Banks now may not be star performers as in the last 30 years. Interest rates are rising now and could stay this way for a while. Loan loss provisions will increase in a weakening economy. But of this class, he likes ZEB and ZWB (a covered call one for income) which he prefers, because he expects banks to be sideways and the covered call will enhance returns. You could buy a combination of the two.
Premium contentWe again reiterate ZWB, an ETF of Canadian banks with dividends enhanced by the use of writing covered calls managed by BMO, as a TOP PICK. Canadian banks are a safe haven during periods of market volatility and will respond well when the economy stabilizes. The yield enhancement gives some additional premium to holding the banks. We recommend maintaining the stop loss at $17.50, looking to achieve $22 -- upside potential of 12%. Yield 6.8%
Premium contentJohn Hood
He traditionally has not been a fan of the Covered Call strategy. Year-to-date this is down 5% with a yield of 5.4%. You can get the Canadian banks with their full upside potential, and still get a yield of about 4%. He would be more inclined to just own the Canadian banks straight up. His 2 favourites are Royal (RY-T) and Bank of Nova Scotia (BNS-T) and TD (TD-T) would be third.