Pass on this ETF

Article Excerpt

BMO Canadian High Dividend Covered Call ETF $17.80 (Toronto symbol ZWC) holds mostly high-quality Canadian stocks. The ETF, launched in February 2017, holds $985.2 million of assets, and has a MER of 0.72%. The fund has 75 stocks. Current top holdings include TD Bank, Royal Bank, BCE, CIBC, Manulife, and Enbridge. This ETF yields a very high 7.5%. However, the dividend income it gets from its portfolio is insufficient to cover so high a dividend yield. To make up the difference, the ETF has to make a profit on trading its portfolio. It 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, its options dealings generate a lot of brokerage commissions, which eat away at the fund’s capital. More important, selling calls also tends to diminish any capital gains that its portfolio might generate. When stocks the fund owns go up, holders of its call…