All posts by Financial Independence Hub

A different take on the Active vs Passive Debate: Can’t we all just get along?

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Image via Outcome/Shutterstock

By Noah Solomon,

Special to Financial Independence Hub

There’s something happening here
What it is ain’t exactly clear

I think it’s time we stop
Children, what’s that sound?
Everybody look what’s going down

  • For What It’s Worth, by Buffalo Springfield

 

Over the past two decades, the asset management industry has witnessed a massive transformation during which assets have migrated from active to passive approaches.

Notwithstanding the obvious appeal of passive investing, I believe that most of the debate between active vs. passive management misses some critical points. This month, I discuss why active vs. passive is not an either/or proposition and how the two approaches are not mutually exclusive. I will also discuss what I refer to as the three pillars of active management: the characteristics that determine whether an active manager can add value to investors’ portfolios.

The Trend is your Friend …. Until the End when it Bends

In 16 of the past 35 years, the majority of active large-cap U.S. managers outperformed their benchmark. However, there have been environments when active managers clearly dominated passive portfolios,  such as the period from 2000 to 2009, when more than 50% of active large-cap U.S. managers outperformed the index in nine out of ten years.

Passive investing is not a panacea. Capitalization-weighted indexes are price momentum-based strategies that are forced buyers of overpriced assets during bubble scenarios. As a result, they tend to do well in rising markets dominated by a few sectors or individual securities. However, this concentration can be very costly during market downturns. There is no built-in buffer or margin of safety and no risk management: just full participation, up or down.

By contrast, active managers are often constrained by individual stock and sector weighting constraints and/or valuation discipline. It is not coincidental that the majority of active managers outperformed during the post tech-bubble bear market of the early 2000s when unreasonably valued technology stocks which were heavily weighted in indexes suffered severe price declines.

Pillar #1: Dare to be Different

Many so-called active funds closely mirror their benchmark indices. These “closet indexers” offer no real value. The math is cruelly straightforward: if an active manager holds a portfolio that is not materially different from their benchmark, then their performance will approximate that of the index less fees (near-guaranteed underperformance). Moreover, such portfolios are almost perfectly correlated to their benchmarks, which renders them utterly incapable of providing diversification vs. benchmark indexes. and providing downside protection in bear markets.

Academic studies have shown that funds which differ materially from their benchmark indexes were more likely to outperform. Make no mistake: holding a portfolio that differs materially from the benchmark doesn’t guarantee outperformance, but it shows that at least you’re trying!

The issue of closet indexing has been particularly pervasive in Canada. A 2013 paper titled “The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and Performance” analyzed the prevalence of closet indexing in different countries. Out of the 20 countries which the study analyzed, Canada ranked highest in terms of the percentage of its actively managed funds that were not truly active, with over 40% identified as closet indexers. This is not surprising given the relatively small size of the Canadian markets and the associated scarcity of highly liquid stocks. Once a fund gets to a certain size, it has little choice but to hug the index unless the manager is willing to sacrifice liquidity and flexibility.

Pillar #2: Downside Protection

From a long-term investing perspective, avoiding losses is more powerful than capturing every last basis point of upside. It takes a 43% gain to recover from a 30% loss. In the past 25 years, the S&P 500 has fallen 30% or more three times. Preserving capital in such environments makes it easier to recover and better compound wealth over the long term. All outperformance is not created equal: outperformance in bear markets is of greater value than outperformance in bull markets. Active managers who can preserve capital in bear markets offer significant value for their clients.

Pillar #3: Consistency

Assessing a manager’s performance across a full market cycle is imperative for understanding the advantage of their approach and their ability to navigate challenging markets. Consistency is essential: a manager who almost always lands in the top half of their peer group offers better long-term results than one who places in the top quintile in one year and falls to the bottom the next. Importantly, managers who consistently protect on the downside are better positioned to deliver outperformance over the long term. Continue Reading…

Covered Call ETFs: Why Total Return matters

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High yield doesn’t equal better returns: Learn how covered call ETFs really work and why Total Return matters before you invest.

Getty Images, courtesy BMO

By Jimmy Xu, BMO Global Asset Management

(Sponsor Blog)

Covered call ETFs have become a popular solution for investors seeking cash flow, particularly in today’s uncertain market environment. With distribution yields that are often meaningfully higher than traditional equity ETFs, they can appear attractive at first glance.

But focusing on yield alone can be misleading.

To properly evaluate covered call ETFs, investors need to look beyond the potential yield and focus on Total Return: and understand how different strategies are implemented.

What are Covered Call ETFs?

Covered call ETFs generate returns by holding a portfolio of equities and selling call options1 on some or all of those holdings.

This strategy produces three sources of return:

  • Dividends
  • Net stock price appreciation from the equities held
  • Option premiums2 from the calls sold

In exchange for that additional return generated from the option premiums, investors give up some upside potential if markets rise strongly: because the ETF may cap some upside participation at predetermined prices.

The result is typically higher cash flow with lower volatility, but more muted upside in strong markets.

The problem with Focusing only on Yield

One of the biggest misconceptions about covered call ETFs is equating high yield with strong performance.

In reality, yield is only one component of return. What ultimately matters is Total Return: the combination of dividends, premiums and equity price appreciation.

A strategy that pays a 10% yield but delivers little or no equity capital growth may lag a lower-yielding strategy over time; investors may also experience the net asset value (NAV) decline over time as distributions erode the initial investment. Conversely, a covered call ETF that balances premium generation with participation in market upside can potentially deliver stronger total outcomes.

That’s why evaluating these ETFs requires a broader lens asking questions such as: how much upside is being sacrificed? How sustainable are the distributions? What is the long-term return profile?

BMO’s Covered Call Approach: A more active Framework

Not all covered call strategies are built the same. BMO’s approach differs in two key ways:

  1. Active Option Management

Rather than mechanically selling calls on a fixed percentage of the portfolio, BMO takes a more active approach: adjusting the following based on timing and market conditions:

  • The percentage of the portfolio covered
  • Strike price selection (how far “out of the money” calls are written)

This allows the strategy to balance cash flow generation with participation in equity upside, particularly during stronger markets.

  1. Partial Coverage vs. Fully Covered

Some covered call ETFs write options on nearly the entire portfolio, maximizing distributions but limiting growth potential.

BMO strategies uses a range of partial coverage, meaning a portion of the portfolio remains uncovered which preserves the ability to participate in rising markets while still generating cash flow.

Our June 2025 Enhancement

In June 2025, BMO refined its covered call approach to further emphasize potential total return outcomes.

While the specifics vary by ETF, the changes broadly reflected:

  • A more flexible coverage range, rather than static coverage targets
  • Greater emphasis on out-of-the-money3 call writing, allowing for more upside participation
  • A continued shift toward actively managing the trade-off between cash flow and potential growth

The goal was clear: move away from maximizing yield alone and toward delivering a more balanced cash flow & growth profile over time.

What Investors should Look for

When evaluating covered call ETFs, a few key considerations stand out: Continue Reading…

HDIV: All-In-One Canadian Income & Growth ETF Turns 5 years old

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Hamilton ETFs

By Hamilton ETFs

(Sponsor Blog)

Last month marked the fifth anniversary of the launch of the Hamilton Enhanced Canadian Covered Call ETF (HDIV), Canada’s very first modestly levered (or “enhanced”) covered call ETF, and there are many reasons to celebrate this marriage of income and growth strategy.

The idea for HDIV was born out of one question: can covered call ETFs be improved? Designed to provide higher monthly income, covered call ETFs have been a rapidly growing segment of the ETF market for several years, but the reality is the strategy does cap your potential upside in exchange for the tax-efficient income it provides.

We thought of a game-changing way to help mitigate this yield/return trade-off: add modest 25% leverage to generate higher monthly income and participate in more upside growth potential.

HDIV Growth and Performance

HDIV has grown to assets under management (AUM) of ~$1.8 billion since inception in July 2021, making it our second-largest ETF after the Hamilton Canadian Financials YIELD MAXIMIZER™ ETF (HMAX).

HDIV’s growth in assets has been impressive, and the fund has also delivered strong performance. Since inception, HDIV has delivered an annualized total return of 19.3%, outperforming the S&P/TSX 60 and the S&P 500 index over the same period[1].

HDIV Performance Highlights:

  • Annualized total return (including dividends) of 19.3%, versus 15.2% for S&P/TSX 60 and 15.6% for S&P 500 (CAD).
  • Outperformed the S&P/TSX 60 in calendar years 2022, 2023, 2024 and 2025 by 3.7%, 1.8%, 2.1% and 4.7%, respectively[2].
  • 14 distribution increases for a total distribution increase of 64% since inception[3].
  • Attractive yield, currently 9.99% — versus 2.29% for S&P/TSX 60[4].

 

What does $100,000 invested in HDIV since day 1 look like?

If you invested $100,000 in HDIV at launch, your investment would be $244,000 with reinvested distributions, as seen in the chart above. Assuming you did not reinvest your distributions, your invested capital grew from $100,000 to $144,875 and you received $56,950 in cash. The chart below shows your total annual income from HDIV and capital growth over five years. So you did not just receive cash flow; your capital appreciated as well.

What has driven HDIV’s performance?

Every aspect of our ETFs is carefully thought-out and tested with the intention that they be long-term responsible investments, and HDIV is no exception. Two structural features have been central to HDIV’s success: modest leverage and broad sector diversification.

Enhanced Structure

HDIV has an enhanced structure with modest leverage of 25%, achieved by borrowing at relatively lower institutional rates. How does this work? For every $100 you invest, HDIV borrows an additional $25, investing a total of $125 in its portfolio and amplifying the fund’s overall yield and growth potential.

Of course, investors should keep in mind that leverage can work both ways, amplifying growth during market rallies as well as losses during downturns. While leverage does add risk and volatility to your portfolio, HDIV only has a modest amount.

Broad Sector Diversification with Blue-Chip Holdings

HDIV is an ETF made up of 10 sector-focused, blue-chip covered call ETFs from our YIELD MAXIMIZER™, Enhanced Growth and DayMAX™ suites. Their weightings have been chosen with the aim of giving HDIV a sector mix broadly similar to that of the S&P/TSX 60.

HDIV’s focus on high-quality stocks is clear when you examine its underlying holdings, which are primarily leading large-cap companies with strong fundamentals. Around 44% of HDIV’s underlying holdings are the largest Canadian financial stocks like the Big Six banks and Canada’s largest insurance company by total assets, Manulife Financial[6]. Energy and technology giants account for over 30% of the fund[7].

 

We also believe HDIV’s underlying holdings are an improvement in the breadth of the S&P/TSX 60 index. Certain Canadian sectors, like energy and technology, are heavily concentrated in a very small number of large-cap stocks. HDIV addresses this lack of diversification by including leading U.S. companies. For example, HDIV holds market leaders like Apple and Microsoft through the Hamilton Technology YIELD MAXIMIZERTM ETF (QMAX) and the Hamilton Enhanced Technology DayMAXTM ETF (QDAY).

The Hamilton ETFs advantage with covered call strategies

As a member of the Hamilton ETFs line-up, HDIV’s underlying covered call strategy is managed by our options team, which has 60+ years of combined experience and is led by Chief Options Strategist Nick Piquard.

Five years in

Five years after HDIV’s launch, we believe the results provide a tangible answer to our original question: can covered call ETFs be improved? HDIV has paired strong total returns with growing monthly distributions and broad diversification, clearly resonating with investors who have helped grow the ETF to more than $1.8 billion in assets. Its first five years have, in our view, demonstrated how an enhanced covered call structure can combine capital growth with a stream of monthly income.

Trivia

The AI investment boom is so big, it’s reshaping economies. What 19th century technological breakthrough triggered an even greater U.S capital spending spree (as a percentage of GDP)?

Hint: The two biggest holdings in Hamilton Utilities YIELD MAXIMIZER™ ETF (UMAX) are involved in this industry.

Answer: Railways.

Disclaimer

Certain statements contained in this article may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Hamilton ETFs undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.

The S&P 500 Index and the S&P/TSX 60 Index (“Indices”) and associated data are a product of S&P Dow Jones Indices LLC, its affiliates and/or their licensors and have been licensed for use by Hamilton ETFs © 2026 S&P Dow Jones Indices LLC, its affiliates and/or their licensors. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices, please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“SPFS”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Neither S&P Dow Jones Indices LLC, SPFS, Dow Jones, their affiliates nor their licensors (“S&P DJI”) make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P DJI shall have no liability for any errors, omissions, or interruptions of any index or the data included therein.

Commissions, management fees and expenses all may be associated with investments in exchange traded funds (ETFs) managed by Hamilton ETFs. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and does not take into account sales, redemptions, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Only the returns for periods of one year or greater are annualized returns. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated.

[1] Based on total annualized returns since inception on July 19, 2021. As at July 31, 2026. Source: Bloomberg

[2] Source: Bloomberg

[3] Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination.

[4] Current annualized yields as at July 31, 2026. The yield calculation excludes any additional year end distributions and does not include reinvested distributions. Source: Bloomberg, Hamilton ETFs.

[5] Source: Solactive AG, Bloomberg, Hamilton ETFs. Data from July 19, 2021 to July 31, 2026.

The graph illustrates the growth of an initial investment of $100,000 in HDIV vs the S&P/TSX 60 Index with annual compounded total returns. The graph is for illustrative purposes only and is intended to demonstrate the historical impact of the compound growth rate. It is not a projection of future performance, nor does it reflect potential returns on investments in HDIV. Investors cannot directly invest in the index. All performance data assumes reinvestment of distributions and excludes management fees, transaction costs, and other expenses which would have impacted an investor’s returns.

[6] As at July 31, 2026

[7] As at July 31, 2026

 

 

 

 

Implementing the FIRE Approach to Car Ownership

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Pexels: Melvin CJ

By Dan Parks

Special to Financial Independence Hub

Transportation is a necessary expense, but it’s also one of the highest ongoing costs for many households.

If you’re pursuing Financial Independence, Retire Early (FIRE), choosing the right car is only part of the equation. The way you buy, finance and own your car can also affect how much money you have available to invest.

Here are ways to apply FIRE principles to car ownership without sacrificing reliability or everyday convenience.

Start with the Total Cost of Ownership

A low monthly payment doesn’t necessarily mean you’ve found the right car for your FIRE plan. Instead of focusing on what fits your budget today, think about what the vehicle will cost over the entire time you expect to own it. You’ll want to look outside of the purchase price and estimate the expenses you’ll face throughout ownership.

According to AAA’s 2025 study, the average cost of owning a new vehicle driven 75,000 miles over five years is $11,577 per year, or about $965 each month. That estimate includes:

  • Financing
  • Depreciation
  • Fuel
  • Insurance
  • License, registration and taxes
  • Maintenance, repair and tires

Depending on your situation, you may also want to account for parking, tolls, accessories, home charging equipment for an Electric Vehicle or any upgrades you plan to make after purchase. Looking at the full cost of ownership gives you a stronger basis for comparing vehicles. A car with a higher purchase price may still cost less to own over time if it holds value well, uses less fuel and requires fewer repairs.

Buy a Car that serves your Purposes

Once you know what you can comfortably afford, choose a vehicle that fits your everyday life. Think about your commute, the number of passengers you usually carry, local weather and road conditions and any work or family responsibilities your car needs to handle. It’s also important to keep reliability in mind, since a well-built car can help you avoid unexpected repair costs and stay on the road for many years.

As your income grows, your vehicle budget may grow too. Before committing to a more expensive model, consider how it fits with your long-term FIRE goals. Many people in the movement use the Rule of 25, which estimates the amount needed for retirement based on annual spending and a 4% maximum portfolio withdrawal rate. Many also aim to withdraw only 3% to 4% of their savings each year, adjusted for inflation.

Every recurring expense influences that calculation, so choosing a reliable vehicle with reasonable ownership costs can help you stay on track and enjoy dependable transportation.

Treat Financing as a Financial Decision

How you pay for your car deserves the same careful thought as choosing the vehicle itself. If paying cash still leaves you with a healthy emergency fund and keeps your investment goals on track, you can avoid interest charges altogether. Financing can also fit your FIRE plan if it helps you manage your cash flow and supports your long-term financial priorities.

If you decide to apply for a loan, check your credit score and credit history. Lenders commonly group borrowers into FICO score tiers. Generally, a score of 670 or higher is considered good, and a better credit profile can help you qualify for a lower interest rate. That can reduce the total amount you repay over the life of the loan, giving you more money to invest. When comparing lenders, evaluate the interest rate, loan term and total repayment amount so you understand the full cost of borrowing.

Maximize the Value of every year you own the Car

A car becomes more valuable to your FIRE journey as it continues to serve you reliably. Extending its lifespan allows you to spread the purchase price and depreciation across more years. This helps you reduce your average transportation costs over time. For many people, keeping a well-maintained vehicle longer can free up money that would otherwise be used for another large purchase.

Reaching that point takes consistent care, though. You need to follow the manufacturer’s service schedule, replace worn parts before they fail and address small issues promptly to help your car stay dependable. A modern car from a brand with a good reputation for reliability may reach 200,000 miles or more when serviced according to the recommended intervals. You can also reduce ongoing costs by reviewing your insurance each year, comparing quotes and adjusting your coverage when your circumstances change.

Review Car Ownership like any other Investment Decision

Your car shouldn’t stay on autopilot after you buy it. Just as you review your portfolio from time to time, your vehicle deserves a regular financial check-in to make sure it still supports your FIRE goals. So, once a year, look outside routine expenses and assess the bigger picture. Analyze how much you’re spending on fuel, insurance, maintenance and repairs, then ask whether your current vehicle still matches your lifestyle.

A longer commute, a growing family or changes to your work could all influence what you need from a car. Plus, increasing repair bills or declining reliability may suggest it’s time to explore another option. Making these evaluations regularly helps you avoid costly decisions driven by habit or impulse. Regular reviews also help ensure your transportation costs continue supporting your long-term goals.

Driving toward Financial Independence

Implementing the FIRE approach to car ownership begins before you receive the keys and continues throughout the vehicle’s life. Always look at the total ownership costs, choose a car that fits your needs, finance carefully and review your expenses regularly so that you can keep transportation costs aligned with your financial goals. Those intentional decisions can free up more money to invest and bring Financial Independence within closer reach.

Dan Parks is a senior writer at Modded.com. Based in Washington, D.C., Dan has a proven track record of distilling complex subjects into accessible narratives across various fields. His expertise in clear communication and meticulous research makes him a valuable contributor to discussions on personal finance and investment strategy, helping readers navigate intricate topics with ease. Dan is dedicated to providing readers with well-researched insights to foster financial literacy and independence.

The World didn’t break: Franklin Templeton Institute’s mid 2026 Investment Outlook

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Image courtesy Franklin Templeton Institute

By Stephen Dover, CFA, Franklin Templeton Institute

(Sponsor Blog)

Executive Summary

• Resilience is the key theme for 2026. Markets and economies have held up well despite geopolitical shocks, policy uncertainty and rising inflation. Global growth remains close to trend, supported by consumer spending, business investment, productivity gains and strong corporate profits.
• We expect investment opportunities to broaden across global equity markets, while corporate credit markets should remain stable. Strong earnings in the United States and emerging markets will support a wider set of opportunities across regions and sectors. • Tighter monetary policy should keep bond yields high and yield curves flat, creating opportunities to earn income. We favor US high-yield credit, select emerging market debt — especially in Latin America — and municipal bonds for US taxpayers.
• Long-term themes remain compelling. Artificial intelligence (AI) is driving demand for energy, infrastructure and broader economic change; rising investment in defense, national security and energy infrastructure create long-term potential return opportunities. Aging populations will require investment in labor-saving technologies, assisted living and health care innovation.
• In private markets and alternatives, secondaries, private credit, real estate and infrastructure offer attractive opportunities.
• Risk to the view. Geopolitical conflict, inflation and a stronger central bank response remain key risks for investors to watch in the second half of 2026.

Introduction

Global Investment Outlook: 2026 and Beyond was built around three cyclical themes — broadening, steepening, and weakening — and three longer-term forces shaping investor portfolios: intelligence, private markets and big government.

Midway through 2026, we think that framework still provides a useful starting point, but the balance of risks has changed. Broadening remains firmly intact, supported by resilient economic growth, strong earnings and improving opportunities across regions and asset classes. But steepening of yield curves has given way to higher-for-longer yields, reflecting higher inflation and tighter monetary policies. Higher yields, however, also offer improved income opportunities in shorter-duration holdings, including US high yield and select emerging markets.

Meanwhile, the US dollar has firmed and is likely to remain rangebound rather than weak over the remainder of 2026. Most importantly, the world did not break. Despite war, tariffs, inflation, tighter policy and geopolitical fragmentation, the global economy and financial markets have held together better than many expected. This update therefore reframes the outlook around a single organizing idea: resilience: both the resilience already evident in economies and markets, and the resilience investors may need to build into portfolios for the remainder of the year.

A more Resilient Outlook (or Resilience in Markets and Portfolios)

The rest of this outlook is organized around one central idea: resilience. The phrase “the world didn’t break” is not meant to suggest that risks have disappeared or that the outlook is free of strain. Rather, it captures the defining surprise of 2026 so far: economies, markets, companies and investors have absorbed a series of shocks without a sustained breakdown in growth, earnings, credit or global trade.
The first sections explain why the global economy and financial markets have held up better than many expected, despite 18 months of geopolitical turbulence, tariffs, war, elections and rising inflation. They also show how resilience has been supported by solid economic growth and strong corporate profits growth across sectors and regions.
From there, we translate resilience into investment implications for equities, fixed income, private markets and alternatives. We also identify key long-term (thematic) opportunities. In all dimensions, we focus on where resilience is apparent and where it can create opportunities for investors in the second half of 2026.

This year, the global economy has demonstrated remarkable resilience in the face of numerous challenges, including geopolitical tensions, trade disputes, fiscal pressures, rising inflation and a sharp re-pricing of central bank policy responses.

Globally, wealth effects and favorable financial conditions have also supported consumption and capital expenditures.
Notably, trade has held up better than many feared following the introduction of high US tariffs in 2025. Global commerce has continued to expand, with important contributions from services.

China’s economy has also demonstrated notable resilience in 2026 despite ongoing challenges from a weak property sector, geopolitical tensions and trade frictions with the United States. The diversification of China’s growth drivers has been a key factor. Strong investment in advanced manufacturing, technology, renewable energy, electric vehicles, batteries and AI has helped offset weakness in real estate. These sectors have benefited from both government support as well as from strong domestic and international demand.

China’s exports have also remained more robust than many expected. Chinese firms have adapted to changing trade patterns by expanding into emerging markets, strengthening supply chains and increasing exports of higher-value-added products. As a result, China has maintained a significant role in global manufacturing and trade despite rising protectionist pressures. Continue Reading…