Two new active solutions aim to give diversified exposure to U.S. or Canadian equity assets
RBC iShares has introduced two new exchange-traded funds (ETFs) RBC Canadian Dividend Covered Call ETF and RBC U.S. Dividend Covered Call ETF.
RBC Global Asset Management Inc. is in charge of the new Covered Call ETFs, which are slated to start trading on the Toronto Stock Exchange.
The Covered Call ETFs leverage RBC Global Asset Management’s extensive active management experience, combining the selection of stocks that are anticipated to provide dividends with an active covered call writing strategy. They are intended for investors seeking a current source of income while minimizing some potential losses.
The solutions will aim to give investors exposure to the performance of a diversified portfolio of Canadian or American equity securities. Depending on the situation, that is expected to generate consistent dividend income and has the potential for long-term capital growth, while reducing some downside risk using covered call options.
The North American Equities division at RBC GAM will oversee the Covered Call ETFs.
Stu Kedwell, senior vice president and senior portfolio manager, co-head of North American Equities at RBC GAM, said in a comment, "In response to today's uncertain market environment, investment solutions offering enhanced income streams with some ability to reduce volatility have become attractive to investors.
"The RBC covered call ETFs are designed to meet this need, utilizing RBC Global Asset Management's demonstrated expertise in active dividend investing combined with our capabilities in option writing."
Investors can gain from the "light-touch" technique used by covered call ETFs, according to Daniel Stanley, director of BMO ETFs.
Markets are now in a state of upheaval following the most recent drop and covered call option techniques can provide investors with better yields with less volatility risk.
According to Stanley, this strategy can provide four key advantages to investors: a greater level of return than simply holding the underlying equities; tax efficiency; a premium level of income in flat markets; and decreased volatility.
The year 2022 has seen asset managers introduce a slew of new enhanced-yield strategies to the Canadian ETF sector as inflation and increasing interest rates create a generally unwelcoming atmosphere of volatility for the equity markets.
The rewards offered by enhanced yield ETFs may seem alluring to investors looking for a way to outperform inflation.
But not all such covered-call ETFs are the same. Martin Pelletier, senior portfolio manager at Wellington-Altus Private Counsel, previously told Wealth Professional that some could be exposed to industries that are outmoded or confronting fundamental issues.
“I think instead of just looking at the yield in itself, investors should seek out the help of a professional who has derivatives expertise and an understanding of how they work in different markets,” he said.
