A Fortified US Treasury ETF for Canadians
By Ambrose O’Callaghan
The early part of this decade saw the introduction of significant monetary interventions that rivalled the policies pursued by central banks following the Great Recession of 2007-2009. Policymakers were able to resuscitate markets in the face of a global pandemic. However, the end of the pandemic saw the beginning of a surge in inflation rates not seen in many decades.
Central banks responded to soaring inflation with the most aggressive interest rate tightening policy since the early 2000s. Policymakers are encouraged with the result of inflation coming down, but a highly leveraged consumer base has been squeezed by the upward revision in borrowing rates. Moreover, the higher interest rate environment has spurred stock market volatility. That has led to a shift investors’ focus, with investors focusing on capital preservation instead of capital appreciation.
Harvest ETFs’ investment management team believes that we are at or near the peak of the current interest rate tightening cycle. In this climate, the prudent investment strategy will factor in high interest rates while preparing for the eventual downward move that many experts and analysts are projecting for 2024. That is why we launched the Harvest Premium Yield Treasury ETF (HPYT:TSX). This portfolio of ETFs with exposure to longer dated US Treasury bonds that are secured by the full faith and credit of the US government. HPYT employs up to 100% covered call writing to generate a higher yield and maximize monthly cash flow.
Why should you consider exposure to US Treasuries?
Canadian consumers might not be celebrating the rise of interest rates. However, the switch to higher rates could be good news for Canadian savers.
US Treasuries are an attractive option for investors who want to take advantage of high short-term yields right now. Moreover, US Treasuries are some of the most secure investments available to prospective buyers. These investments are secured with the full faith of the US government, which makes them highly dependable.
How does Harvest offer such high income in the HPYT ETF?
This US Treasury ETF combines a portfolio of ETFs of long duration US Treasury Funds with Harvest ETFs’ active covered call strategy.
If we operate under the assumption that we are at or near the park of the current interest rate tightening cycle, the eventual downward move will see an increase in the value of bonds. So, the HPYT holds US Treasury ETFs that offer exposure to longer duration bonds to reduce volatility. That, combined with the covered call strategy, allows HPYT to generate higher levels of income.
Reasons the HPYT ETF might be right for you . . .
Canadian consumers are being crunched by rising interest rates in the current environment. Indeed, a recent study by the National Payroll Institute and conducted by Canada’s Financial Wellness Lab showed that the number of people under financial stress has grown 20% over the past year as of September 2023. Investors looking to combat the consumer crunch can look to HPYT with an approximate yield of 15% for some reprieve. That far outpaces even the higher interest rates we are seeing for mortgages and personal loans in the autumn of 2023.
