By Ambrose O’Callaghan
In April 2024, Harvest ETFs launched the Harvest Balanced Income & Growth ETF (HBIG:TSX). This exchange-traded fund (ETF) is designed to provide Canadian investors with access to a balanced portfolio consisting of primarily Harvest Equity Income ETFs and Harvest Fixed Income ETFs that deliver high monthly cash distributions.
What is a balanced portfolio? How is Harvest changing the original formula to meet investor needs in 2025? Let’s jump in.
What makes up the traditional 60/40 portfolio?
According to the Investment Funds Institute of Canada (IFIC), the number of mutual fund assets in Canada totaled $2.42 trillion at the end of December 2024. That was down $25.3 billion – or 1.1% – since November. Mutual fund net sales were $2.6 billion in December 2024.
Meanwhile, ETF assets totaled $517.6 billion at the end of December 2024. That is only up $2.3 billion or 0.4% since November. Moreover, ETF net sales were $10.6 billion in the final month of 2024.
Balanced mutual funds made up $997 billion, nearly half of the total mutual funds operational in Canada. That means that Balanced portfolios are the most popular among Canadians who are invested in mutual funds. ETFs, by comparison, are still heavily weighted in Equity and Bond funds. Balanced ETFs only make up $23.3 billion out of $517 billion. That said, they delivered much stronger net sales – $5.54 billion in 2024 versus $1.82 billion in 2023 – which could indicate that investors are more inclined to exploring balanced portfolios in this asset class going forward.
A balanced fund typically refers to a portfolio that is broken down by 60% equity and 40% fixed income exposure. That ratio allows for capital appreciation while mitigating risk and providing protection from volatility with the exposure to bonds. While the 60/40 ratio is a proxy for the typical balanced portfolio, it is not a one-size-fits-all. Some balanced portfolios may aim for ratios that weigh either equities or bonds more heavily.
How do covered calls generate high income?
Harvest ETFs believes that wealth is created and preserved by owning leading businesses and high-quality fixed income securities. Moreover, Harvest is a market leader in covered call options ETFs.
Covered call ETFs generate cash flows for unitholders from a portfolio of securities with a covered call option writing strategy. Harvest launched its first ETFs in 2016. Since then, it has established itself as one of the top covered call option writing firms in Canada. Harvest utilizes an active and flexible call option strategy to build high yield ETFs that pay monthly distributions and still capture the opportunity for market growth.
HBIG: Blending tradition with innovation
The Harvest Balanced Income & Growth ETF, or HBIG, seeks to blend the traditional 60/40 balanced portfolio with the innovation of Harvest’s time-tested covered call writing strategy. That way, the ETF achieves balanced growth and income while delivering consistent high monthly distributions through its covered call strategy.
HBIG will contain 60% Harvest Equity Income ETFs. This will include the Harvest Healthcare Leaders Income ETF (HHL:TSX), which has paid out over $400 million in total distributions since inception, and the Harvest Tech Achievers Growth & Income ETF (HTA:TSX), which has won a Lipper Award for two consecutive years. Covered calls will be written on up to 33% of the Equity Income portion of the portfolio.
Meanwhile, HBIG will also contain a 40% Fixed Income ETF portion. This will include the Harvest Premium Yield Treasury ETF (HPYT:TSX) and the Harvest Premium Yield 7-10 Year Treasury ETF (HPYM:TSX). Covered calls will be written on up to 100% of the Fixed Income portion of HBIG.
The traditional 60/40 balanced strategy, combined with the covered call writing strategy, allows investors to get exposure to the traditional approach to a balanced growth and income result while generating high monthly income through the writing of call options.
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.
