The Hamilton Enhanced Multi-Sector Covered Call ETF (HDIV) outperformed the S&P/TSX 60 by 3.7% in 2022 (after fees)[1]. Since it was launched on July 19, 2021, HDIV has outperformed the large ‘low fee’ Canadian equity ETFs, like XIU, XIC, ZCN and VCN by over 700 bps (after fees), while paying out significantly higher distributions. As of year-end, HDIV had a yield of 9.68%, paid monthly and its strong performance supported a rise in its AUM to over $270 mln.

To achieve HDIV’s investment objective of “providing attractive monthly income”, we are striving for a sector mix broadly similar to the Canadian equity markets in hopes of creating a “high income” version of the S&P/TSX 60. While our sector mix is not identical to the S&P/TSX 60 Index, we believe investors that hold the large benchmark index ETFs could switch to HDIV and achieve high correlations to the Canadian equity markets, while at the same time, generating higher monthly income.

For investors holding covered call ETFs, we are seeking to reduce the yield/return trade-off and higher volatility inherent in sector covered call ETFs, by adding modest 25% leverage to a ‘lower beta’ diversified portfolio. While we do not expect HDIV to outperform in every period, we are pleased with the result. We would also note that HDIV outperformed the index in a down year, notwithstanding its modest leverage.

HDIV also has a sister ETF – the Hamilton Enhanced U.S. Covered Call ETF (HYLD). Its investment objective is also to “generate attractive monthly income” and is striving for a sector mix “broadly similar” to the benchmark S&P 500 Index. In our view, the sector mixes of the S&P/TSX 60 and S&P 500 are highly complementary, and investors seeking broad equity exposure to the Canadian and U.S. equity markets should consider holding both HDIV and HYLD as core positions.


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A word on trading liquidity for ETFs …

Hamilton ETFs are highly liquid ETFs that can be purchased and sold easily. ETFs are as liquid as their underlying holdings and the underlying holdings trade millions of shares each day.

How does that work? When ETF investors are buying (or selling) in the market, they may transact with another ETF investor or a market maker for the ETF. At all times, even if daily volume appears low, there is a market maker – typically a large bank-owned investment dealer – willing to fill the other side of the ETF order (at the bid/ask spread).

Commissions, management fees and expenses all may be associated with an investment in the ETFs. The relevant prospectus contains important detailed information about each ETF. Please read the relevant prospectus before investing. The ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements contained in this insight 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.

[1] Based on total return from December 31, 2021 to December 30, 2022.

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