Covered call strategies for enhanced income and growth in shifting market policies
This article was produced in partnership with Harvest ETFs.
The Canadian exchange-traded fund (ETF) market has been experiencing explosive growth, with assets under management surpassing $500 billion in 2024. With record-breaking inflows of $76 billion—a 45 percent leap from the previous high set in 2021—the Canadian ETF landscape cemented itself as a cornerstone of investor activity.
Canadian investors, in particular, have long favored balanced mutual funds for their simplicity and reliability. But in an era demanding higher returns, lower fees, and tax efficiency, the traditional mutual fund model faces stiff competition. This is where balanced covered call ETFs come into play.
Amid this surge in popularity, Harvest ETFs introduced two innovative products last April, designed to redefine balanced investing for modern markets. The Harvest Balanced Income & Growth ETF (HBIG:TSX) and the Harvest Balanced Income & Growth Enhanced ETF (HBIE:TSX) aim to combine the stability of a traditional 60/40 portfolio with the enhanced income potential of covered call strategies.
“These ETFs represent a fresh take on a classic strategy,” said Michael Kovacs, President & CEO of Harvest ETFs. “Balanced funds have been a cornerstone of the mutual fund industry for decades, but we saw an opportunity to bring something new to the ETF space—higher income, better efficiency, and a hands-off solution for today’s investors.”
What sets these balanced ETFs apart?
Both HBIG and HBIE are built on the principles of a 60/40 portfolio, blending equities and fixed income. However, their key differentiator is the use of covered call strategies to enhance income, delivering a base yield of approximately eight per cent—far exceeding the two per cent typical of many balanced funds.
HBIE also incorporates modest leverage, around 25 percent, to further boost income and growth potential. While this adds some risk, it provides an attractive option for investors seeking higher returns.
Rising costs of living and persistent inflation have left many Canadians seeking ways to generate passive income to ease financial pressures. These challenges, coupled with previously rising interest rates, have driven demand for investment products that offer consistent and high monthly cash flows.
The ETFs’ portfolios include a mix of Harvest’s equity and fixed-income ETFs, covering sectors like healthcare, technology, utilities, and energy, as well as two externally managed fixed-income ETFs from BMO and iShares.
For investors seeking even greater income potential, HBIE offers an enhanced alternative. Built to replicate HBIG’s investment portfolio, HBIE applies modest leverage to deliver higher yields and growth opportunities. HBIE last announced a monthly cash distribution of $0.20 per unit with a record date of December 31, 2024, and a payment date of January 9, 2025.
A first in Canada
Kovacs emphasized that these ETFs bring something entirely new to the Canadian market. By generating income through covered call strategies within both equity and fixed-income holdings, HBIG and HBIE provide a consistent income stream while maintaining the balanced portfolio structure investors are accustomed to.
“This is an asset allocation model that doesn’t just sit there—it works for you,” Kovacs said. “With tactical management and income generation built in, these ETFs offer a solution that simplifies portfolio construction while delivering more for investors.”
Tiffany Zhang, Vice President of ETFs and Financial Products Research at National Bank Financial, highlighted the sector’s momentum, noting that inflows of $76 billion in 2024 reflected widespread investor interest across asset classes, including equities, fixed income, multi-asset funds, and commodities. Zhang said in an interview with BNN Bloomberg, that retail investor demand has been a key driver of this surge.
Kovacs explained that these ETFs are not only an investment innovation but also a response to the financial challenges Canadians face today. “HBIG and HBIE represent an evolution of the balanced portfolio,” Kovacs said. “These ETFs are designed to meet the needs of passive income investors who want consistent cash flow in an environment where inflation and rising costs affect nearly every aspect of their lives.”
