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Opinions Larry Berman CFA, CMT, CTA
BMO Covered Call Canadian Banks ETFZWB.TOCOMMENTJun 07, 2021
Larry Berman CFA, CMT, CTAStock 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
The profitability of banks is net interest margins. The steepening of the yield curve has led to banks being more profitable. A flattening yield curve is a headwind. We are not there yet. When the yield curve starts to flatten. ZEB is good to capture upside, and ZWB for when it will go sideways to down.