By Caroline Grimont
At the beginning of the 2025 tariff war between Canada and the U.S., which was in March, just 3 months and many, many lifetimes ago, Canadian icon Mike Myers appeared on Saturday Night Live in a ‘Canada is NOT for Sale’ t-shirt and mouthed the words “Elbows Up” to the camera in the show’s closing segment.
Since then, both phrases have gone viral, as a Canadian response to American overtures of becoming the 51st state. CBC credits “Elbows up” to hockey legend Gordie Howe, saying, “In hockey-loving Canada, the phrase automatically evokes memories of one of the game’s greatest players, Saskatchewan-born Gordie Howe, who before becoming Mr. Hockey had earned another nickname: Mr. Elbows”, adding that elbows are so much a part of the Gordie Howe legend that a bronze statue outside Saskatoon’s SaskTel Centre portrays the hometown hero with his left elbow held aloft, as if fending off an invisible opponent.
This got me thinking about how I might go “Elbows Up” in my portfolio. Investing in Canada might be a good idea right now, as we seem to have weathered the volatility relatively better than some other indexes – at least so far. As of June 15th, the TSX Composite index is up 6.45% year-to-date, while the S&P 500 index is up 1.85%.
If you are an investor looking for exposure to Canadian companies, including banks, energy companies, household brands, and others, and also want a regular stream of monthly cash distributions, then consider the Harvest Canadian Equity Leaders Monthly Income Fund, (HLIF:TSX).
What is HLIF?
Harvest Canadian Equity Income Leaders ETF invests in 30 of the largest diversified Canadian equities, each of which has an equal weight in the fund. The three largest sectors of the fund are financials, energy, and utilities, and the three together make up over 70% of the fund’s portfolio. Some of the stocks held in the fund include the Big 5 banks, Enbridge, TC Energy, Canadian Tire, Telus, and many more.
All the companies included in the fund are large-cap leaders with dominant market share. This means that by buying this one ETF, investors get access to top quality businesses that have been operational for decades, in many cases with little competition, and large competitive advantages.
Will I Get Income with HLIF?
In a nutshell, yes. companies must meet stringent dividend criteria tto make the cut, and as a result, the ETF is populated with dominant dividend payers with growth tailwinds. So, investors in the fund can look forward to dividends for income, along with capital appreciation.
But additionally, HLIF utilizes a covered call strategy to enhance portfolio income potential and lower portfolio volatility. The fund writes covered call on 33% of the portfolio securities, which helps to lower the volatility of the fund’s return and provides monthly cash flows. With a write level of 33%, there is still enough exposure to capture the potential upside.
As Harvest ETFs explains it: “Covered call option writing is about striking the right balance. At its most basic level, when you write a covered call option, you gain premiums but can miss some market upside.” You can find out more about covered calls here.
As my colleague Ambrose O’Callaghan recently wrote: “Harvest ETFs has built a reputation for generating consistent monthly income through this active covered call writing strategy throughout its over 15-year history. It is one of the largest investment fund companies engaged in call option strategies in Canada. The investment team is one of the most knowledgeable in option writing and equity investing, possessing many decades of experience. To date, Harvest has generated nearly $1.5 billion in total monthly cash distributions.”
From a tax standpoint, it is important for Canadian investors to remember that this income received from covered calls is considered capital gains and is not considered interest income. This is important, because 50% of income from capital gains (up to $250,000) is generally tax free, while the remainder is taxed at your marginal rate. However, interest income is taxed as ordinary income.
How Much Does HLIF Cost?
The management expense ratio of HLIF is 0.79%. For this price, investors get a carefully curated and regularly reviewed portfolio of 30 high value stocks, along with covered call options written on a portion of the portfolio to ensure monthly income.
How to Buy HLIF?
Investors can buy HLIF via online discount brokerages, or through brokers. The ETF may be held both in registered accounts such as an RRSP, RESP or TFSA, or in non-registered accounts.
What is the Risk Rating of HLIF?
Investors should remember that this is a fund that invests in stocks and so its value can either rise or fall. What this means is that investors could lose money, depending on when they buy and sell this ETF.
As Harvest ETFs explains in HLIF’s documentation, “One way to gauge risk is to look at how much the ETF’s returns change over time. This is called ‘volatility.’ In general, ETFs with higher volatility will have returns that change more over time. They typically have a greater chance of losing money and may have a greater chance of higher returns. ETFs with lower volatility tend to have returns that change less over time. They typically have lower returns and may have a lower chance of losing money.”
Harvest has rated the volatility of this ETF as medium.
Who is HLIF For?
HLIF is appropriate for investors who are looking for exposure to Canadian equities and income, want a medium to long-term investment, and can handle the ups and downs of stock markets.
So, if you want some maple in your portfolio, with a dose of income on the side, you could consider investing in the Harvest Canadian Equity Income Leaders ETF!
Disclaimer
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The Funds are not guaranteed, their values change frequently, and past performance may not be repeated. The content of this article is to inform and educate and therefore should not be taken as investment, tax, or financial advice. Distributions are paid to you in cash unless you request, pursuant to your participation in a distribution reinvestment plan, that they be reinvested into available Class units of the Fund. If a Fund earns less than the amounts distributed, the difference is a return of capital.
