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Opinions John Hood
BMO Covered Call Canadian Banks ETFZWB.TOCOMMENTDec 27, 2017
John HoodStock price when the opinion was issued
As of Jun 19, 2026. Market Open.
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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.
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Canadian banks are a core holding for him. Covered call boosted the yield in his portfolio.
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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 uses a lot of the ZWB-T. He is always looking at keeping the cost low. When looking at covered calls or managed ETFs, all of a sudden prices spike. He’s looking to buy from 5 to 15 basis points. But there are times when he will look at a different products like ZWB-T or the whole series they have, ZWH-T, ZWA-T, etc. But the different thing with the covered calls is that the persons sitting at the trading desks are actually making a difference and he thinks it’s worth paying for. When you buy a covered call you are giving up some of the upside in exchange for cash flow. With interests rates being so low, covered calls are a good way to get the flow of income. He uses covered calls to enhance the income of a portfolio. He’s been holding this for years.