By Harvest ETFs
The 2022 Canadian Refinitiv Lipper Awards have been announced and one Harvest ETF has been named the Best Sector Equity Fund.
The Harvest Tech Achievers Growth & Income ETF (HTA:TSX) was named the Best Sector Equity Fund over 3 years—for its “A” class units—and the Best Sector Equity Fund over 5 years—for its “U” class units.
The Refinitiv Lipper Fund Awards are widely considered a global industry leader, with a 30+ year history of assessing and recognizing funds and fund managers. They use a proprietary quantitative methodology to assess funds based on their consistent risk-adjusted performance relative to peers in their categories. Their awards are fully independent and reflect an “uncompromised” assessment of investment funds.
“We are very pleased that HTA has been named a Lipper Award winner,” said Michael Kovacs, President & CEO of Harvest ETFs. “Our approach at Harvest ETFs has been to focus on growth industries like tech, select the leading companies from that industry, and apply our active & flexible covered call option writing strategy to generate income for unitholders.
“It’s gratifying to see that approach validated by this award.”
What made this Tech ETF an award winner?
“2022 has not been an easy year for the technology sector,” said James Learmonth, Senior Portfolio Manager at Harvest ETFs. “But our thesis from the launch of this fund was that by focusing on the most established companies while generating cashflow and monetizing volatility through active call option writing, we could meet the needs of Canadian investors and deliver risk-adjusted returns.”
Learmonth explained that the active & flexible covered call option writing strategy used in HTA can generate high income yields, monetize periods of market volatility, and capture potentially greater upside than a passively managed call option ETF. He attributes some of the success of HTA to that strategy’s considerable utility for investors in a difficult year. When equities and fixed income assets have fallen together, the income paid by call option ETFs like HTA has been a reliable contributor to risk-adjusted returns.
Where does the tech sector sit going into 2023?
Learmonth gave his assessment of 2022 in tech investing. Tech stocks started the year with investors focused on the Federal Reserve’s likely increases in interest rates. The arrival of high inflation and subsequent ratcheting up of rates significantly impacted tech stocks and tech ETFs across the board.
As interest rate increases began to get priced in by markets, and some relief arrived, markets were then hit by worsening overall economic conditions, the tightening of consumer purse strings, and a hangover from the onset of the COVID-19 pandemic when individuals overspent on devices.
Learmonth explained that in this environment it’s worthwhile to look at two different kinds of tech companies. The first kind are companies whose valuations are more tied to future earnings potential and the promise of their technology. These companies have struggled more as a result of higher interest rates and worsening economic prospects.
The second kind are more established companies, with robust financials, significant market share, track records of profitability, and valuations based on past earnings. These companies have, generally, not lost value as rapidly as companies in the first category, Learmonth explained.
“Not only are these companies profitable on a typical accounting basis,” Learmonth said, “but they also have positive free cash flow. This allows them to continue investing through this down cycle, setting them up to capture growth opportunities when the cycle turns around again.”
The Harvest Tech Achievers Growth & Income ETF is focused on these more established players in the technology sector.
Building a Tech ETF to capture leadership
“We have a structured process for all of our ‘leaders’ strategies,” Learmonth said. “We start by looking for a sector with long-term growth prospects—in this case technology. Then we use some high level quantitative metrics to narrow that universe. In this ETF we filter by market cap. Every holding in HTA has a minimum $10 billion in market cap, has a deep options market, and is traded on a North American exchange.”
From there, Learmonth uses as traditional fundamental quantitative and technical analysis to select the 20 companies he and the portfolio management team see as the ‘leaders’ of this industry. That process biases HTA towards those more established tech companies outlined above. While a great deal of intricacy and work went into the Lipper award win, combining that leadership with Harvest ETFs active & flexible covered call option writing strategy has been key to the HTA ETF’s success.
“We’re big believers that the best way to generate wealth over the long term is through long term investment in great companies,” Learmonth said. “This ETF gives you an opportunity to continue generating that cash flow and meet your investment goals, while still retaining that exposure to the market.”
Quoted in this article
James Learmonth, CFA
Senior Portfolio Manager