BMO Covered Call Utilities ETF (ZWU.TO)

He likes it and holds it in a dividend fund, using it in a defensive way. It has a covered call overlay. Unfortunately the premium from the covered call strategy is less than desirable because volatility has been so low for so long. We are seeing a little sell off because of a sensitivity to interest rates. If it falls another couple of percent he will go back to accumulating it.

A Covered call ETF which clients gravitate to. ZUT-T is the non-covered call overlay. Over the very long haul you may get higher returns with ZUT-T than ZWU-T. If you need the yield, then there is nothing wrong with the covered call ETF, ZWU-T. Consider XIC-T also.

80% Canada / 20% US. It is not a fixed income replacement. He is not adding to his holding right now. He loves it as a yield play and would add more if we sold off more aggressively. He has half a position.

Had been avoiding the utility area, because he saw the temper tantrum the market went through with the thought that rates were going up in the US. He’s come to the conclusion that interest rates are going to stay low for a lot longer than anticipated. Utility yields are quite attractive, and it is almost impossible to get those kinds of yields out of the fixed income market.

He would be very cautious about certain ETF’s that are loaded with derivatives, etc. They may not perform the way you expect them to. Also, the market doesn’t just look at where rates are going in the next year. He would not be a big fan of a Covered Call ETF.

Covered Call in 60% of shares. It is in Utilities. A pretty good yield. He is pleased they expanded into US utilities. Unfortunately they do badly in increasing interest rates. He would not want to think rates were going up too fast. Premiums for options are quite low right now so the covered call feature may not be doing as well as previously.

In a strong upward market it will underperform the equal weight without covered calls. Despite what others have said, these are not bad for long term holds. They do not, however, replace fixed income because you have equity exposure.

They write call options against utilities. It is an interest rate play. Once rates started to go up, utilities are vulnerable and so are covered calls. They may not go up for a while yet in Canada.

What is the downside risk? This has 80% pipelines, telcos, utilities in Canada and 20% in the US. Generally utilities, telcos and pipelines are big dividend players. This is yielding about 7%, a very nice yield, but extremely interest rate sensitive. In 2013, when the US Federal Reserve was first talking about raising rates, we had the taper tantrum. This ETF went down pretty hard, but then came back up when the Fed backed off. In 2015, there was a big drop because of pipelines, when oil prices were coming down. You have to understand what you are holding.

Utilities, pipelines and Telco’s. 80/20 Canadian to US. It fell on anticipation of interest rate increases and oil dropping early in 2016. You have to be careful because rising interest rates and falling oil prices are both negative for it.

He doesn’t own any utility ETF’s right now. They are one of the most battered parts of the market, which would have been a great opportunity to buy around Christmas. This ETF is pretty good. It has a great yield. It has a combination of both Canadian and US utility names. This is a pretty good entry point. 6.75% yield.

Hold it in a TFSA if there is an interest rate increase? An interest rate increase is not necessarily a reason to bail on this, however, you need to recognize what you own. This would be utility stocks, and you need to have high dividend paying companies. This was a great space to be in prior to the US election, because of slow growth and interest rates pretty much on hold. Covered calls are written against half of the stocks, and the other half are allowed to grow by themselves. ZWB is probably a better place to be. It is the same structure, but a little less on the dividend side.

(Market Call Minute.) You are better to own the individual names, and do your own calls on top of it. However, it is an okay ETF to own.

Pipeline stocks with Democrats staying in power. This is a reference to keystone. Trump is in favour, Hillary is not. The valuation is not great right here. ZWU-T in this sector he likes. You are diversified and they are all high dividend payers and the ETF has a covered call overlay however if interest rates were going up then this would perform poorly. He would add to this ETF on weakness.

High-yield ETF’s? The Fed is probably off the table in terms of raising interest rates. It wouldn’t surprise him if the next move was a cut. If there is an economic downturn again, the answer is lower rates, but they are not going to work. There are some big challenges ahead. He has said for years that interest rates are going to stay near zero for decades, just for the world to get a little bit of growth. If interest rates are going to stay low, then utilities are a good source of dividends because they are regulated. There is not a lot of growth, but the dividends are pretty consistent and stable. He would stick with Canadian dividends. It is still a little too early to be aggressively buying things as there is more downside to come. His favourite is BMO Covered Call Utilities (ZWU-T). You are getting a near 7% yield.