Har est ETFS announces new ETFS: An innovative balanced covered call ETF and an industrials-focused ETF
New products stress monthly cash distribution, opportunities for growth
For investors seeking opportunities in balanced growth and income, and exposure to the resurging U.S. industrial sector, Harvest ETFS has announced three new ETFS. The new ETFS are the Harvest Balanced Income & Growth ETF [TSX: HBIG], the Harvest Balanced Income & Growth Enhanced ETF [TSX: HBIE] and the Harvest Industrial Leaders Income ETF [TSX: HIND].
HBIG is designed to provide access to a balanced portfolio consisting primarily of Harvest Equity Income ETFS and Harvest Fixed Income ETFS, with the aim of delivering consistent monthly cash distributions. HBIE invests in HBIG and uses a 25 per cent leverage to amplify exposure to portfolio of securities in HBIG. HBIE is designed for investors who may be willing to risk marginally increased volatility for the potential to enhance their income and growth levels by one quarter.
HIND offers access to a portfolio of U.S. industrials sector equity leaders.
All three ETFS take advantage Harvest ETFS’ covered call expertise with the goal of enhancing monthly income. The portion of income generated through covered calls is considered capital gains in Canada, not interest income. That offers the potential for greater tax efficiency across the portfolio.
Michael Kovacs, president and chief executive officer of Harvest ETFS, notes that both HBIG and HBIE were launched to meet the needs of retirees who are increasingly living longer.
“The average 65-year-old Canadian can now expect to live to 86 or longer,” he says. “That’s 21 years where you need to generate capital, and not necessarily be dependent on government for your income. Given that longevity, we realized that an income strategy may not be enough — we also need to have some growth — and we believe a balanced approach is a great way to offer that.”
The underlying holdings are weighted 60 per cent toward equities, which tend to exhibit a greater growth bias. Kovacs notes that investors just entering retirement may be looking at an investment time horizon of 20 years or more, also offering ample opportunity for markets to demonstrate their overall trend of gaining value over time.
The remaining 40 per cent is in fixed income products, that provide investors exposure to investment grade bonds or money market instruments issued by corporations or governments.
The covered call options writing is done in the underlying ETFS held by HBIG. For the Equity ETFS, covered calls will represent as much as 33 per cent of the portfolios and for the underlying fixed income ETFS up to 100 per cent. Overall, HBIG and HBIE will have 75 per cent of the NAV exposed to covered ETFS.
While balanced investment vehicles are common in mutual funds, Kovacs notes that they’re conspicuously absent in the ETF space, representing several hundred million dollars in a Us$400-billion industry.
“These ETFS are also the first balanced ETFS in Canada primarily focused on utilizing covered calls,” he says. “Most balanced funds or ETFS offer small distributions, and often on an annual or quarterly basis. On HBIG and HBIE, with the aid of an income-generating covered call strategy, we’ll be paying a monthly distribution.”
The Harvest Industrial Leaders Income ETF is designed to capture the value of an increasingly resilient U.S. industrials sector.
“Industrials have been a key part of the market and a fundamental component of the economy for hundreds of years,” Kovacs says. “We’re starting to see industrials recover following a challenging 2022 and believe they will continue to perform well over the longer term.”
Industrials are also diversifying beyond their original definition, now including companies that manufacture semiconductors, clean energy products, electric vehicle components and aerospace and satellite technologies.
The Industrial Leaders ETF focuses on approximately 20 innovative large-cap U.S. companies with a global reach.
“The focus on U.S. companies is also based on three laws passed in that country to prioritize domestic manufacturing,” Kovacs says. “They’ve put some strong incentives in place to boost domestic production.”
The Infrastructure Investment and Jobs Act, signed into law in 2021, authorizes US$1.2 trillion for transportation and infrastructure spending. The CHIPS and Science Act, signed into law in 2022, authorizes US$280 billion to boost domestic manufacturing of semiconductors. Finally, the Inflation Reduction Act, signed in 2022, includes numerous provisions for rebuilding U.S. infrastructure and the development of clean energy and other initiatives.
Like the balanced ETFS, the Industrial Leaders ETF provides monthly cash distributions. It directly writes covered call options on up to 33 per cent of the portfolio securities.
“Using a covered call strategy, we believe the Industrial Leaders fund will offer lower overall volatility of portfolio returns than if you owned the securities that comprise the ETF directly,” Kovacs says.
For more information on Harvest ETFS, visit