Pass on this ETF

Article Excerpt

BMO COVERED CALL CANADIAN BANKS ETF $18.43 (Toronto symbol ZWB; TSINetwork ETF Rating: Conservative; Market cap: $1.9 billion) holds shares of Canada’s six largest banks (CIBC, TD Bank, Bank of Montreal, Bank of Nova Scotia, Royal Bank and National Bank) either directly or through units of the BMO Equal Weight Banks Index ETF. The fund started up in January 2011. Its MER is a relatively high 0.72%. BMO Canadian High Dividend Covered Call ETF yields a high 5.5%. However, the dividend income that the fund receives from its own portfolio is insufficient to cover its distribution to its unitholders. To make up the difference, it has to make a profit on trading its portfolio. The ETF also aims to raise its returns by writing call options on the portfolio’s securities. Selling call options generates a stream of income for this ETF. However, options dealing generates a lot of brokerage commissions, which eat away at the fund’s capital. More important, selling calls also tends to diminish any capital…

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