Q: Hello all. Could I have your opinion please on CGFX, a gold ETF containing the largest gold miners. It pays a distribution yielding around 6%. They do this by writing covered calls on 25% of the portfolio. Too good to be true? Thanks.
A: The CI First Asset Gold+ Giants Covered Call ETF, $17.20, symbol CGXF on Toronto (Units outstanding: 24.8 million; Market cap: $426.6 million; www.firstasset.com), holds an equal-weighted portfolio of the 15 largest gold and precious-metal companies as measured by market capitalization. Each is listed on a North American stock exchange.
The fund has an MER of 0.65%.
The ETF’s holdings are Pan American Silver, Yamana Gold, B2Gold, Gold Fields (ADR), Kinross Gold, AngloGold Ashanti (ADR), Royal Gold, Wheaton Precious Metals, Agnico Eagle, Kirkland Lake Gold, Barrick Gold, Endeavour Mining, Franco-Nevada, Newmont Corporation and Novagold Resources.
CI First Asset Gold+ Giants Covered Call ETF yields a high 6.7%. However, the dividend income that the fund receives from its own portfolio is insufficient to cover its distribution to unitholders. As a result, it must make a profit on trading its portfolio to make up the difference. The ETF also aims to raise its returns by writing call options on the portfolio’s securities.
Selling call options generates…
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