By Caroline Grimont
If there’s one thing that Canadian investors love, it is dividends and income. And for certain types of investors, chasing dividends makes sense. Say for example, you’re at, in, or near retirement. In those circumstances, you may want to replace your salary with another income stream. Dividend stocks could offer you a steady income, while leaving your capital intact.
Investors know this, and as a result, there is plenty of advice online on the best Canadian dividend stocks. Many of these lists feature household names like Bank of Montreal (TSE: BMO,) or Telus (TSE: T,) or Enbridge (TSE: ENB.) Others feature lesser- known names like Labrador Iron Ore Royalty Corp (TSE: LIF).
Of course, investors see these yields and want to jump in as well. Picking individual stocks requires some amount of time and effort and can be daunting. First, you have to find companies that payout high dividends. Then you need to track them to find the right entry point to buy the stock. On top of that, you have to keep tracking the companies to make sure that they have enough cashflows and growth to continue to pay out dividends and hopefully grow. It can be challenging for someone with no training in this field, and with limited time, to accurately make these decisions. There is the possibility of making mistakes along the way which could be costly and may set you back a little
There are ways to get exposure to the stock you like without the hard work and diligence that comes with picking individual stocks. If an investor wants to participate in a sector in which she thinks there is growth potential, she might consider a mutual fund or an exchange traded fund (ETF). ETFs are generally cheaper because of their operation structure. They are have more trading flexibility since they can be bought/sold anytime during market open, like stocks; and they don’t require a minimum purchase amount other than the cost to buy one unit the ETF. If an investor is looking for an equity income fund that is well diversified across sectors has exposure to some of the world’s largest names in the dividends and income space, and payout monthly cash flows with the potential for capital appreciation, she could consider the Harvest Diversified Equity Income ETF (HRIF:TSX).
What is HRIF?
Launched in 2023, HRIF is designed to provide high monthly cash distributions alongside an opportunity for capital appreciation by investing in a portfolio of Harvest ETFs that engage in covered call strategies to produce high monthly distribution yields. The launch of HRIF followed a successful 2022 launch of the Harvest Diversified Monthly Income ETF (HDIF.)
The two funds are similar, with one key difference – HRIF does not use leverage, while HDIF does. Leverage adds a level of risk, and not all investors are comfortable with that. With these options, investors can choose whether they want more, or lesser risk.
Some of the benefits of HRIF include:
- Exposure to leading large capitalization companies across sectors,
- Monthly cash distributions with opportunity for capital appreciation, and
- Covered call strategy used to enhance portfolio income potential and lower portfolio volatility
What Has Been HRIF’s Returns?
As at February 28, 2025
| Ticker | 1M | 3M | 6M | YTD | 1Y | SI |
|---|---|---|---|---|---|---|
| HRIF | (0.42) | (1.90) | 5.66 | 2.53 | 15.80 | 13.98 |
What Does HRIF Hold?
HRIF is a fund of funds, meaning it holds a portfolio of nine Harvest Equity Income ETFs. The underlying ETFs are primarily sector specify and targe leaders within each sector:
- Harvest Brand Leaders Income Fund (HBF:TSX)
- Harvest Canadian Equity Income Leaders (HLIF:TSX)
- Harvest Healthcare Leaders Income (HHL:TSX)
- Harvest Equal Weight Global Utilities Income (HUTL:TSX)
- Harvest Tech Achievers Growth and Income (HTA:TSX)
- Harvest US Bank Leaders Income (HUBL:TSX)
- Harvest Travel and Leisure Income (TRVI:TSX)
- Harvest Global REIT Leaders Income (HGR:TSX) and
- Harvest Industrial Leaders Income (HIND:TSX)
What this means is that investors holding HRIF get exposure to a diversified range of sectors and companies, making this offering a one-stop solution for investors looking for equity income.
As Chairman of the Harvest board Michael Kovacs explains, “Each ETF holds a portfolio of leading companies in their particular sector and market area. We define that leadership through quantitative and qualitative metrics such as market cap, market share, performance history and — in the case of certain underlying ETFs — dividend payment history. The companies selected in each ETF’s portfolio demonstrate leadership across those metrics.”
HRIF, through the underlying ETFs, holds over 200 market leading companies in the utilities, industrials, travel & leisure, technology, healthcare, real estate, and banking sectors, and includes brand leaders, and Canadian household names.
Will I Get Dividend Income with HRIF?
Canadians love income and dividends, and so, investors would want to know what the income potential of HRIF might be. HRIF provides high monthly cash distributions and the opportunity for capital appreciation by investing in a portfolio of Harvest ETFs that engage in covered call strategies to enhance monthly distribution yields. And yes, investors also receive income generated through dividends.
Depending on the underlying investments of a Harvest ETF, distributions on the Units are expected to consist of income, including foreign income and capital gains, less the expenses of the Harvest ETF and may include returns of capital.
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.
Also, 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 HRIF Cost?
HRIF has a zero-management fee. This does not mean it is free. The ETF is subject to fees of the underlying ETFs in the portfolio. Of this, the Management expenses ratio (MER) was 0.95%, while the Trading expense ratio (TER) was 0.23%. For this price, investors get access to nine separate sector ETFs, along with covered call options written on a portion of the portfolio to ensure monthly income.
How to Buy HRIF?
Investors can buy HRIF via online discount brokerages, or through brokers and if working with an advisor then speak with her. The ETF may be held both in registered accounts such as an RRSP, RESP or TFSA, or in non-registered accounts.
How risky is HRIF?
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 HRIF’s documentation, “The value of the ETF can go down as well as up. You could lose money. 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.” The risk rating Harvest has assigned to HRIF’s volatility is medium based on volatility spectrum the goes from low to high (for a full description see documentation).
As Kovacs has said, “Our active strategy means write levels are flexible; Equity Income ETFs target a 33% write limit, Harvest single stock ETFs a 50% write limit, and Harvest Fixed Income ETFs have the flexibility up to a 100% write limit. Our portfolio management team aims for some exposure to market upside at all time. Additionally, when option premiums are higher Harvest portfolio managers can either write at lower levels to capture more upside or write at the same levels and ensure adequate cashflow is maintained for investors. Because volatility raises options premiums, this active strategy has advantages during periods of volatility as it can monetize that spikiness on the markets. That spikiness, or elevated volatility, is a key consideration for investors.”
Harvest has rated the volatility of this ETF as medium.
Who is HRIF for?
HRIF is for investors who are looking for exposure to a diversified portfolio of ETFs and seek high income. As this fund invests in equities, it is for investors who have a very short-term time horizon and who are conservative, instead it is for investors who want to invest for the medium to long-term and can manage the ups and downs in the stock market.
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 indicated rates of return are the historical annual compounded total returns (except for figures of one year or less, which are simple total returns) including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. Tax investment and all other decisions should be made with guidance from a qualified professional. Equity securities mentioned herein is for illustration purposes and should not be taken as an invitation to purchase or sell such security.
