By Harvest ETFs
Canadian investors have been forced to reorient their investment strategy in this new decade. In the 2010s, red-hot markets were fueled by historically low interest rates and multiple rounds of quantitative easing. This contributed to one of the longest bull markets on record. That streak spilled into the early 2020s, despite a global health scare, as central banks pursued even more radical forms of monetary stimulus. Then, in late 2021 and early 2022, inflation surged to levels not seen in decades. Central banks made a hawkish turn that saw interest rates rise to early-2000s levels.
Central banks have undertaken some monetary easing in 2024, but interest rates remain higher than the pre-pandemic environment. That shift has spurred many investors to take a different approach. Gone are the days that a blue-chip bank stock will be guaranteed to deliver solid capital appreciation year in and year out.
While the market may have changed compared to the 2010s, the principles that govern sound investing have not. Harvest ETFs focuses on wealth creation by investing in strong, growth-oriented businesses. It utilizes a covered call strategy for income generation.
Investors have shifted from a focus on capital appreciation to one that values capital preservation. In these conditions, the Harvest Diversified Monthly Income ETF (HDIF:TSX) offers a portfolio primarily of Harvest equity income ETFs that are positioned to deliver steady monthly income and the opportunity to participate in growth potential.
The components of HDIF
Harvest Diversified Monthly Income ETF (HDIF) comprises the following holdings as of November 29, 2024
- Harvest Brand Leaders Plus Income ETF (HBF)
- Harvest Equal Weight Global Utilities ETF (HUTL)
- Harvest Canadian Equity Income Leaders ETF (HLIF)
- Harvest Healthcare Leaders Income ETF (HHL)
- Harvest Tech Achievers Growth & Income ETF (HTA)
- Harvest Travel & Leisure Income ETF (TRVI)
- Harvest US Bank Leaders Income ETF (HUBL)
- Harvest Global REIT Leaders Income ETF (HGR)
- Harvest Industrial Leaders Income ETF (HIND)
- Cash and other assets and liabilities
How the HDIF ETF delivers strong monthly income
While HDIF’s underlying ETF portfolios all hold equities with distinct exposures to market forces, there is another important strategy at work in each of them: equity income derived from covered call strategies.
Each of the approximately equally weighted ETFs held in HDIF employ an active covered call strategy to generate a monthly cash distribution to unitholders. Covered calls work by writing call options on a percentage of the funds’ holdings to generate a premium. You can learn more about covered call options here. When actively managed, covered call strategies are actually able to monetize market volatility, by taking advantage of higher option premium prices due to implied volatility.
HDIF combines separate equity strategies that are all combined with an active call option strategy. This, with the addition of 25% leverage, means the ETF generates an attractive annualized yield that—in a market when both equities and fixed income have struggled—can be an important component of total return.
Investors who want an unlevered ETF with exposure to Harvest Equity Income ETFs, there is the Harvest Diversified Equity Income ETF (HRIF). HRIF generates high monthly income from an active and flexible covered call strategy applied to its underlying ETFs without the use of leverage.
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.
