As interest rates have fallen, investors who have traditionally relied on bonds and bond-like investments for income have faced tough decisions. Finding safe and predictable income streams has been a challenge.
For many, this has meant turning to equities, particularly global brand leaders with strong businesses. While the share price of these companies rises and fall with the broader economy, they have strengths that allow them to continue to remain profitable in downturns while continuing to pay dividends.
A diversified portfolio of these large capitalization multinationals helps to protect against economic risk and offers shelter and opportunity. The companies have strong cash flow and balance sheets, well-established businesses and a commitment to dividend growh. In downturns, their share prices tend to fall the least and recover first.
This strategy is at the heart of the Harvest ETFs philosophy. Harvest offers simple, transparent, competitively priced Exchange Traded Funds (ETFs) that own the most successful global businesses. Over time these companies generate steady growth and income. The Harvest way can be summarized as: Global leaders = high income + long term growth.
This thinking led Harvest to create a suite of ETFs that combine capital growth opportunity and monthly distributions with tax efficient current yields of between 5 and 8%.[i]
Harvest achieves this yield in two ways. It chooses global leaders, or the biggest and most dominant companies in their industry. The companies must have a history of profitability and weathering all economic cycles, plus a record of paying dividends that tend to rise over time.
Second, Harvest enriches the returns with a covered call strategy. Harvest is third largest option writing firm in Canada with seven of its 13 ETF’s having option writing strategies.
The covered call strategy adds to the basic dividend income safely by selling a portion of the potential rise in stock price in exchange for a fee. The fee limits the gain a bit, but it also acts as a cushion if share prices fall, because the fee is kept no matter what.
The fee is also tax advantaged. It is treated as a capital gain for tax purposes which is taxed at a lower rate than investment income.
Here’s a closer look at the five ETFs and their monthly yield[i]:
The ETF holds 20 of the largest global healthcare companies with 40% of its holdings in pharmaceuticals including the vaccine makers Pfizer Corp. and Astra Zeneca plc. Biotech is 15% , healthcare equipment 20% and healthcare providers 15%.
The ETF invests in an equally weighted portfolio of 30 global utilities, covering telecommunications, oil and gas storage and energy transportation. About 33% of the holdings are in US, Canada is 20% and Europe 35% as at August 31, 2021. The Canadian names include Fortis Inc., Emera Inc., TC Energy Corp., Enbridge Inc. and BCE Inc.
The ETF holds 16 large cap banks and bank like businesses. The ETF is equally weighted so is a diversified way to invest in the US banking system.
The ETF is an equally weighted portfolio of 20 companies selected from the world’s Top 100 Brands. Those 20 companies must generate a five-year return on equity growth that is higher than the average, have a price-earnings multiple that is lower than the average and a dividend yield that is higher than the average.
The ETF holds 30 broadly diversified developed market real estate issuers. About two-thirds are in the US, with 10% in Europe, 8% in Australia, 5% in Singapore and 3% in Canada. The holdings are spread out among industrial REITs, residential and office, retail, healthcare and casinos and resorts.