Tag Archives: ETFs

Introducing Harvest High Income Shares: Top U.S. Stocks and High Monthly Income

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By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog) 

On Wednesday, August 21, 2024, Harvest ETFs introduced another innovative product in its growing lineup: Harvest High Income Shares ETFs.

These single-stock ETFs invest in top, well-favoured U.S. stocks, with a focus to provide high income every month from covered call writing.

The Top U.S. Stocks in Scope

Eli Lilly. A dominant global pharmaceutical manufacturer and distributor.

Amazon. A global e-commerce giant that has established a massive logistics network and an innovator in enterprise cloud computing.

Microsoft. A global leader in software services and solutions, as well as hardware technology.

NVIDIA. Established as a huge force in the semiconductor industry, with its graphics processing units (GPUs) at the forefront of the AI revolution.

These U.S. stocks are well known and sought after. They are four of the largest and most widely held stocks in today’s market. They offer a significant building block for covered call writing strategy, in that the shares of these massive companies have very deep and liquid option markets. Further, the level of volatility that accompanies the share prices is high. That makes these great stocks for Harvest’s active and flexible covered call writing strategy.

The Harvest Process:  Strong focus on High and Reliable Income every month

Record matters, and Harvest has it. For 15 years and counting, Harvest has pursued an active covered call writing strategy focused on generating high income, every month for investors in its Income ETFs lineup. Supported by its proven covered call strategy, Harvest has delivered nearly $1 billion in total monthly cash distributions over its 15-year history to investors.

This new, innovative product line, focuses on investing in shares of a single company targeting the largest, most widely held U.S. stocks. Harvest’s investment team — with a combined six decades of investment experience — will use Harvest’s well-established covered call writing strategy to provide high monthly income to investors while delivering on what sets Harvest apart;  that is, ensuring that investors enjoy not just high, but consistent, stable, predictable, and reliable income each month.

The premium income from covered call writing can be treated as capital gains. That means the high income that the Harvest High Income Shares ETFs seek to provide can be regarded as being among most tax-efficient income. The Harvest High Income Shares  ETFs are organized as Canadian Trust Units and are available in Canadian and U.S.-dollar-denominated Units. As open-end mutual funds listed on an exchange (“ETFs”), on the TSX, they provide trading and reporting flexibility for Canadian investors.

Innovation, High Monthly Income, and Upside

The covered calls strategy used in the Harvest High Income Shares  ETFs will operate with up to 50% write level. Harvest’s portfolio management team has stress tested these equities with an average 2-year implied volatility. It found they can produce high levels of income at much lower write levels. Therefore, a 50% write level, in their view, provides a conservative floor to ensure unitholders will be able have reliable high-income generation every month. Continue Reading…

Active or Passive Investing: Which is Best?

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Image courtesy Justwealth

By Robin Powell, The Evidence-Based Investor*  

Special to Financial Independence Hub

* Republished from the Just Word Blog from Robin Powell, the U.K.-based editor of The Evidence-Based investor and consultant to investors, planners & advisors  

There are broadly two types of investing: active and passive investing. Active investors try to beat the market by trading the right securities at the right times. Passive investors simply try to capture the market return, cheaply and efficiently. So which approach is better?

Instinctively, most people who haven’t looked into the issue in any detail tend to assume that active investing is superior. After all, the thinking goes, it’s surely preferable to be doing something to improve your investment performance, instead of just accepting whatever return the market offers. Active investing has certainly been much more popular than passive in the past.

But if you look at the evidence, you’ll see that over the long run, most mutual fund managers have underperformed passively managed funds.

S&P Dow Jones Indices keeps a running scorecard of active fund performance in different countries, including Canada, called SPIVA. It consistently shows that, regardless of whether they invest in equities or bonds, most active managers underperform for most of the time.

The latest SPIVA data for Canada were released a few weeks ago, and they chart the performance of active funds up to the end of December 2023. What the figures show is that the great majority of funds have lagged the relative index once fees and charges are factored in, especially over longer periods of time.

Underperformance over ten years is even more pronounced. For example, 98.04% of Canadian Focused Equity funds, 97.56% of U.S. Equity funds and 97.60% of Global Equity funds underperformed the benchmark. Remarkably, on a properly risk-adjusted basis, not a single U.S. Equity fund domiciled in Canada beat the S&P 500 index over the ten-year period.

In fact, fund managers have found it so hard to outperform that, of the funds that were trading at the start of January 2014, just 61.33% of them were still doing so at the end of December 2023. That’s right, almost four out of ten funds failed to survive the full ten years.

Of course, it might still be worth investing in an active fund if you knew in advance that it’s likely to be one of the very few long-term outperformers. The problem is that predicting a “star” fund ahead of time is very hard to do, and past performance tells us very little, if anything, of value about future performance.

To illustrate this point, the SPIVA team examined the persistence of funds available to Canadian investors. Among Canadian-based equity funds that ranked in the top half of peer rankings over the five-year period to the end of December 2017, only 45% remained in the top half, while 55% fell to the bottom half or ceased to exist, at least in their own right, in the following five-year period.

To be clear, I’m not saying that active managers in Canada are any less competent than their counterparts in other countries. What the SPIVA analysis shows is that managers all over the world struggle to add any value whatsoever after costs. Distinguishing luck from skill in active management is notoriously difficult, but the proportion of funds that beat the markets in the long run is consistent with random chance.

Why do so few active managers outperform?

So why is active fund performance generally so poor? The most important reason is that beating the market is extremely difficult. Why? Because the financial markets are highly competitive and very efficient. Never before have investors had so much information at their disposal. New information is made available to all market participants at the same time, and prices adjust accordingly within minutes, or even seconds.

In the short term, then, prices move up and down in a random fashion. So, identifying a security that is either underpriced at any one time is a huge challenge.

Another reason why active fund performance tends to be so disappointing is that active managers incur significant costs. Salaries, research, marketing, the cost of trading and so on: all of these things need paying for, and it’s the investor who picks up the tab. Once all these costs are added together, they present a very high hurdle for fund managers. Simply put, any outperformance they succeed in delivering is usually wiped out by fees and charges. Continue Reading…

Top Canadian Dividend ETFs

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By Mark Seed, myownadvisor

Special to Financial Independence Hub 

What makes a great Exchange Traded Fund (ETF)?

What makes a great Canadian dividend Exchange Traded Fund? 

What are the top Canadian dividend ETFs to own?

You’ve come to the right site and the right post for these answers and my thoughts. Let’s go in this updated post!

Top Canadian Dividend ETFs – what is an ETF?

An ETF (Exchange Traded Fund) is a diverse collection of assets (like a mutual fund) that trades on an exchange (like a stock does).

This makes an ETF a marketable security = it has trading capability. Since you and buy and sell ETFs on an exchange during the day, ETF prices can change throughout the day as they are bought and sold.

ETFs may typically have lower fees than mutual funds (although not always), which can make them an attractive alternative to mutual funds.

Based on my personal experiences approaching 20 years as My Own Advisor I find ETFs very easy to buy using a discount brokerage and ETFs can provide a low-cost way to diversify your portfolio.

Although you don’t need to buy equity ETFs, it is my personal belief that you’re FAR better off owning more equities than bonds over long investing periods.

Simply put: learn to live with stocks for wealth-building. I’m trying to do the same!

What goes into a good ETF? What should you consider?

Before we get into my favourite Canadian dividend ETFs, here are some elements to consider as you select your ETFs for your portfolio:

1. Style – ETFs can track an index, follow an industry sector, be rules-based like some smart-beta funds are, or be much more. For the most part, I prefer plain-vanilla, broad market equity indexed ETFs. While I used to own a few dividend ETFs I no longer invest this way. I’ll link to that post later on. That said, Dividend ETFs can provide income to you as an investor; tangible money to use or reinvest as you please.

2. Fees – Hopefully by now from my site you know that high money management fees kill portfolio values over time. I try and keep my management expense ratio (MER) (the fee paid to the fund’s manager, as well as taxes and other costs) low (for as long as possible). Dividend ETFs often come with higher fees due to portfolio turnover. Something to think about.

Further Reading: Learn about MERs, TERs and more about ETF fees here.

3. Tracking error – In short, tracking error is the difference between the performance of the fund (the ETF) and its benchmark (what it tracks). I would advise you to look at the fund’s prospectus before you buy it and strive to own ETFs with low tracking errors.

4. Diversification – Along the same lines ‘Style’, you should be very mindful of the assets within an ETF before you buy it. ETFs are not created equal.

If you’re just starting out your investing journey, you can learn more about ETFs here.

Top Canadian ETFs vs. Dividend ETFs

When in doubt about buying any individual stock, I’ve been a huge fan of Canadian broad market ETFs like XIU, XIC, ZCN, VCN, along with others over the years.

I like XIU in particular.

XIU holds the largest 60 stocks in Canada and most of those stocks held in XIU pay dividends, although not all of them. Paying a dividend comes down to company policy. There are certainly many ways shareholder value is created.

While XIU has nowhere near the number of holdings that VCN has, XIU has delivered stellar long-term returns better than most.

I referenced this above: diversification can be a great ally as a risk mitigation tactic against stock picking but that doesn’t mean owning an ETF is bulletproof. Indexed ETFs hold all the stock studs and duds. Dividend ETFs might do the same. Dividend ETFs may limit your investing universe and your returns compared to other funds. Things to think about.

5. Tax efficiency – If you never intend to max out your TFSAs, RRSPs, kids’ RESPs, or other registered accounts then this is a non-issue for you. For some investors, however, who invest outside registered accounts (such as the aforementioned RRSPs, RRIFs, TFSAs, RESPs, LIRAs) like I do, then you need to consider the tax efficiency of your ETFs.

XIU in particular is very tax efficient. There are other ETFs to consider for tax efficiency as well.

In taxable accounts, I would advise you to look at the fund’s prospectus before you buy it and strive to own ETFs for your taxable account that are tax efficient; for the dividend tax credit or for capital gains.

Further Reading: How to invest for tax efficiency investing in taxable accounts.

6. History – While past performance is never indicative of future results unfortunately ETF/fund history is all we have since nobody can predict the financial future with any accuracy. Consider the track record of the ETF when it comes to returns.

What are my Top Canadian Dividend ETFs?

All data and information was updated in late-July 2024 and is approximate (for total returns) at the time of this post.

ETF Symbol MER # of holdings Total 5-Year Return Total 10-Year Return
VDY 0.22% 56 61% 100%
ZDV 0.39% 51 46% 67%
XEI 0.22% 75 50% 70%
XIU 0.18% 60 55% 103%
Comparison only: XAW 0.20% 8,700+ stocks 71% N/A – 2015 inception date

I’ve added global ETF XAW for comparison purposes only to the other four (4) Canadian dividend ETFs.  (Dislosure: I own XAW ETF and will continue to do so.)

Why I don’t own any Top Canadian Dividend ETFs…

Readers of this site will know I don’t own any Canadian dividend ETFs. I’ll share those reasons:

While the Vanguard Canadian High Dividend Yield Index ETF (VDY) is a good consideration, I own all the top-10 VDY stocks outright / on my own at the time of this post and have done so for 10+ years in many cases. So, no point in duplicating things …  Also, VDY is heavy on Canadian banks so there is sector concentration risk there I could avoid by owning some individual Canadian stocks. I can also decide to own some lower-yielding and higher=growth stocks inside my taxable account. Continue Reading…

Using Defensive Sector ETFs for the Canadian retirement portfolio

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By Dale Roberts

Special to Financial Independence Hub

In a recent post we saw that the defensive sectors were twice as effective as a balanced portfolio moving through and beyond the great financial crisis. The financial crisis was the bank-failure-inspired recession and market correction of 2008-2009 and beyond. It was the worst correction since the dot com crash of the early 2000’s. Defensive sectors can play the role of bonds (and work in concert with bonds) to provide greater financial stability. With defensive sector ETFs you might be able to build a superior Canadian retirement portfolio.

First off, here’s the original post on the defensive sectors for retirement.

The key defensive sectors are healthcare, consumer staples and utilities.

And a key chart from that post. The defensive sectors were twice as good as the traditional balanced portfolio. The chart represents a retirement funding scenario.

You can check out the original post for ideas for U.S. dollar defensive sector ETFs.

The following is for Canadian dollar accounts. Keep in mind, this is not advice. Consider this post as ‘ideas for consideration’ and part of the retirement portfolio educational process.

The yield is shown as an annual percentage as of mid March, 2023.

80% Equities / 20% Bonds and Cash

Growth sector ETFs

  • 15% VDY 4.6% Canadian High Dividend
  • 15% VGG 1.8% U.S. Dividend Growth

Canadian defensive sector ETFs

  • 15% ZHU 0.5% U.S Healthcare
  • 10% STPL 2.4% Global Consumer Staples
  • 5.0% XST 0.6% Canadian Consumer Staples
  • 10% ZUT 3.7% Canadian Utilities

Inflation fighters

Take advantage of the U.S. Manufacturing Boom with this Industrials Monthly Income ETF

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Image courtesy Harvest ETFs

By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog)

The passing of three important pieces of legislation in 2021 and 2022 thrust the United States manufacturing sector, and industrials, into the spotlight. But what are industrials, anyway? When we are talking about industrials, we are referring to a sector that is composed of companies that produce goods used in construction and manufacturing that encapsulates several sub-sectors.

Some of the most prominent sub-sectors in the Industrials space include Aerospace & Defense, Electrical Components & Equipment, Industrial Machinery & Supplies & Components, Rail Transportation, and others. The Industrials sector is drawing attention in 2024 for several key reasons.

Today, we are going to explore the resurgence in U.S. manufacturing, the burgeoning aerospace and defense space, and the merits of Harvest’s first-ever covered call Industrials ETF. Let’s jump in.

The resurgence in U.S. manufacturing

According to the U.S. Department of the Treasury, real manufacturing construction spending has doubled since the end of 2021. This increase occurred in a supportive policy climate after the passing of three key pieces of legislation: The Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and CHIPS Act. These three pieces of legislation provided funding and tax incentives for public and private entities in the manufacturing construction space.

The U.S. Treasury Department report shows that the computer/electronic segment has represented the largest component of the U.S. manufacturing resurgence. However, the growth in the size of that segment has not been offset by a reduction in spending in other manufacturing sub-sectors. Construction in areas like chemical, transportation, and food/beverage have all enjoyed growth through 2022, just at a reduced pace. The chart below shows the top manufacturing construction projects by value and location since August 2022.

The CHIPS and Science Act was signed into law by President Joe Biden on August 9, 2022. It included US$39 billion in subsidies for chip manufacturing on U.S. soil. This included 25% investment tax credits for the cost of manufacturing equipment. The chart below shows construction spending in the manufacturing space over the past two decades, bookended by a surge after three pieces of legislation.

Deutsche Bank research indicated that 18 new chipmaking facilities began construction between 2021 and 2023. Indeed, the Semiconductor Industry Association reported that more than 50 new semiconductor ecosystem projects have been announced after the CHIPS Act.

Aerospace and defense spending today

The aerospace sector involves the design, manufacture, and operation of vehicles that travel in aerospace. Meanwhile, the defense sub-sector produces and seeks to sell weapons, and military technology. Continue Reading…