Pass on this ETF: Horizons Enhanced Income Gold Producers ETF

Article Excerpt

The HORIZONS ENHANCED INCOME GOLD PRODUCERS ETF $37.00 (Toronto symbol HEP) invests in an equal-weighted portfolio of North American-listed gold mining companies. The portfolio currently holds 14 stocks, with all the top producers such as Barrick Gold and Newmont Corp. represented. The ETF yields a high 5.0%. 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 gains that its portfolio might generate. When gold stocks that the fund owns go up, holders of its call options will exercise their right to buy the stock at the agreed-upon lower…