Product news: Brompton introduces ETF for split corp. preferred shares

Toronto-based Brompton Funds Limited has a new ETF that invests exclusively in the preferred shares of split corporations — the first fund of its kind in Canada.

The Brompton Split Corp. Preferred Share ETF (TSX: SPLT) invests in an actively managed portfolio of split corp. preferred shares from corporations listed on a Canadian exchange.

Split corporations are investment funds issued by financial institutions (including Brompton and a few other providers) that typically hold a basket of dividend-paying stocks, often financial institutions. The corporation is split into two share classes: the dividend is paid on the preferred share while the class A share holds the growth or capital gains.

“As such, the preferred shares are protected from portfolio losses (to a point) with a predefined distribution, while the class A shares offer higher risk-reward through leveraged [net asset value] participation,” according to a report last month from National Bank Financial.

The market for split corp. preferred shares is growing, the report said, with assets up 71% over five years to about $5 billion across 30 funds.

Brompton said the new fund is for investors looking for dividend income and to preserve capital, and who are able to accept some variability in returns. By investing only in the preferred shares of split corps., the ETF offers monthly distributions with an initial annualized target rate of 6.25%.

A report from RBC Capital Markets said split corp. preferred shares offer some structural advantages over typical preferred shares, as they typically reset at market rates at the end of their term and have the option to be redeemed.

A majority of the Brompton ETF’s portfolio is scheduled to reset within the next 18 months, the RBC report said, “and with the current yield of 6.3%, this would imply an expected increase to the pref coupon payments.”

While the fund won’t track an index, a report from TD Securities said the ETF “intends to cover all preferred share split issues in the market and provides a one-stop diversified offering for investors looking for split shares exposure,” with a focus on value and liquidity.

The ETF wrapper allows investors to transfer some of the risks and execution costs to market makers, the TD report said, and may make it easier to access the market and eventually act as a price discovery tool.

The Brompton ETF may use leverage to enhance dividend income or “pursue attractive investment opportunities,” the firm said. It does not expect to employ leverage of more than 15% of net asset value.

The ETF’s risk rating is low and the management fee is 0.50%.

Maximum yield

Hamilton Capital Partners Inc. introduced a new ETF that uses covered calls to enhance yield on holdings in the utilities sector.

The Hamilton Utilities Yield Maximizer ETF (TSX: UMAX) provides exposure to large Canadian utilities companies and uses an active covered-call strategy to enhance monthly income and reduce volatility, the firm said. The fund writes options on about 50% of the portfolio.

Its top holdings include large telecoms, railways, pipelines and hydro companies, and its initial target annualized yield is 13%.

The release follows the Hamilton Canadian Financials Yield Maximizer ETF (TSX: HMAX), which launched in January. That fund has almost $400 million in assets and a current annualized yield of 15.24%.

The utilities fund’s management fee is 0.65% and its risk rating is medium.

Other launches

BMO Investments Inc. introduced ETF series of several funds, one of which is an asset allocation fund for covered-call products.

The BMO Global Enhanced Income Fund ETF Series (TSX: ZWQT) invests in a basket of BMO covered-call ETFs that aim to provide higher income and reduce volatility. The fund the ETF is based on, which launched in May 2022, posted a -1.40% return in its first year ended May 31. The ETF has a 0.65% management fee and a medium risk rating.

BMO also introduced ETF series of the following funds:

BMO U.S. Equity Growth MFR Fund (TSX: ZUGE)
BMO U.S. Equity Value MFR Fund (TSX: ZUVE)
BMO Global Equity Fund (NEO: BGEQ)
BMO Global Health Care Fund (NEO: BGHC)
BMO Global Infrastructure Fund (NEO: BGIF)
BMO Global Innovators Fund (NEO: BGIN)
BMO Global REIT Fund (NEO: BGRT)

Mackenzie Investments introduced a U.S.-dollar version of its global dividend fund, which provides exposure to global dividend-paying companies. The Mackenzie USD Global Dividend Fund has a 2% management fee for Series A (0.8% for Series F) and low-to-medium risk rating.

National Bank Investments Inc. introduced two new broad funds for equities and fixed income. The NBI International Equity Fund takes an active approach to equities outside North America, while the NBI Canadian Core Plus Bond Fund invests in bonds from Canadian issuers with various maturities and credit ratings. Both funds invest primarily in other mutual funds. The management fee for Series A is 1.75% for the equity fund and 0.95% for the bond fund.

Fund closures

Purpose Investments Inc. is closing the Purpose Healthcare Innovation Yield ETF (TSX: HEAL) less than two years after its launch. Holding biotechnology and health-care companies with an option-writing strategy, the fund managed by Next Edge Capital Corp. returned around 5% since its inception in January 2022. Purpose said it’s closing the fund around Aug. 25 due its relatively low assets under management of $5.4 million.

RBC Global Asset Management Inc. is terminating seven ETFs in mid-September. The closing funds are: