By Harvest ETFs
Canadian investors—in large numbers—are seeking income from their investments. Some investors are seeking high monthly income to offset the rising cost of living. Others are incorporating the income paid by their investments in total return. Whatever the reason, many of those investors are finding the income they seek in equity income ETFs.
Equity Income ETFs have seen strong inflows in 2022, in a period when traditional equities have struggled. These ETFs—which generate income from a portfolio of stocks and a covered call strategy—offer yields higher than the rate of inflation and higher than most fixed income.
Harvest ETFs has seen over $1 billion in assets flow into its equity income ETFs so far in 2022, as investors seek high income from portfolios of leading equities from a reputable provider. Now, Harvest is launching 5 new ETFs to build on that reputation and demand for higher income.
“The appetite for equity income among Canadian investors has grown and grown,” said Michael Kovacs, President & CEO of Harvest ETFs. “We’re pleased to be launching these new enhanced equity income ETFs to help meet that demand and provide Canadians with the high income yields they’re seeking in today’s market.”
The ETF strategies getting enhanced
Harvest has launched the following new enhanced equity income ETFs, with initial target yields higher than their underlying ETFs.
|Name||Ticker||Initial Target Yield|
|Harvest Healthcare Leaders Enhanced Income ETF||HHLE||11.0%|
|Harvest Tech Achievers Enhanced Income ETF||HTAE||12.8%|
|Harvest Brand Leaders Enhanced Income ETF||HBFE||9.70%|
|Harvest Equal Weight Global Utilities Enhanced Income ETF||HUTE||10.20%|
|Harvest Canadian Equity Enhanced Income Leaders ETF||HLFE||9.60%|
“We selected 5 established equity income ETFs to underpin our new enhanced equity income ETFs,” said Kovacs. “They reflect our core investment philosophy, owning the leading businesses in a specific growth industry and generating income with covered calls.”
Each enhanced equity income ETF has specific tailwinds from its underlying ETF. HHLE captures the superior good status of the healthcare sector by owning the Harvest Healthcare Leaders Income ETF (HHL:TSX). HTAE accesses a portfolio of established tech leaders in the Harvest Tech Achievers Growth & Income ETF (HTA:TSX). HBFE provides exposure to some of the world’s top brands through the Harvest Brand Leaders Plus Income ETF (HBF:TSX). HUTE captures a defensive global portfolio of utilities providers through the Harvest Equal Weight Global Utilities Income ETF (HUTL:TSX) and HLFE offers access to some of Canada’s leading companies by owning the Harvest Canadian Equity Income Leaders ETF (HLIF:TSX).
How the Enhanced Equity Income ETFs will deliver a higher yield
These new enhanced equity income ETFs use leverage to deliver high income. They apply a leverage component of approximately 25% to an existing Harvest equity income ETF. That leverage raises the annualized yield of the ETF while elevating the risk-return profile and the market growth prospects of the ETF.
The below graphic and example shows how a hypothetical enhanced ETF investment can work.
For an example—$100,000 is invested in the enhanced Healthcare ETF HHLE. Modest Leverage is then applied by the portfolio management team borrowing around $25,000 and adding it to the principal – The ETF then purchases $125,000 worth of HHL units.
That investment participates in $125,000 worth of market growth opportunity – meaning higher risk and growth prospects.
Because of that leverage, the original $100,000 investment from the unitholder generates a higher level of HHL income derived from covered call strategies and dividends.
“We believe that by combining a modest amount of leverage with our underlying ETFs’ active & flexible covered call strategy,” Kovacs said, “the Harvest enhanced equity income ETFs can provide the high income that so many Canadian investors are seeking.”