Product news: Hamilton introduces first covered-call bond ETF

With the recent popularity of covered-call equity ETFs, Hamilton Capital Partners Inc. is venturing into the fixed-income space using the same approach.

The Toronto-based firm will launch the Hamilton U.S. Bond Yield Maximizer ETF on Sept. 15. The product is the latest in a series that includes funds covering Canadian financials and utilities equities, but it’s the first for Hamilton — and for Canada — covering bonds.

Nick Piquard, chief options strategist with Hamilton ETFs, said bond ETFs have reached a size where options liquidity can support the strategy. And after a period of low interest-rate volatility following the financial crisis, volatility has normalized, “which is supporting premium income,” he said.

The fund provides exposure to U.S. Treasuries through bond ETFs while writing covered calls on roughly half the portfolio to increase monthly income and reduce volatility. There’s also a tax benefit, since covered-call premiums are taxed as capital gains rather than interest income.

“In your fixed-income bucket, it’s a way to get a higher yield that is tax efficient without taking additional credit risk,” said Rob Wessel, managing partner with Hamilton ETFs.

The fund is targeting a 10% yield. (The 10-year U.S. Treasury is yielding almost 4.3%.)

As with all covered-call products, the fund comes with a yield/return tradeoff: “To the extent that bonds rally, investors won’t get the upside on the portion of the portfolio on which you’ve written options,” Wessel said.

The ETF (TSX: HBND) will begin trading Friday with a management fee of 0.45% and a low-to-medium risk rating.

The bond fund is the third in Hamilton’s “yield maximizer” series. Since launching in January, the Hamilton Canadian Financials Yield Maximizer ETF (TSX: HMAX) has gathered $515.5 million in assets, while the Hamilton Utilities Yield Maximizer ETF (TSX: UMAX), launched in June, has $119 million.

More than $2.1 billion flowed into covered-call ETFs in the first half of this year, according to TD Securities.

Hamilton has filed prospectuses for two more “yield maximizer” funds: one focused on large-cap U.S. tech firms and the other on broader large-cap U.S. equities.

iShares follows five new themes

RBC iShares has launched five ETFs focused on “structural trends” ranging from semiconductors to clean energy.

The iShares S&P/TSX Energy Transition Materials Index ETF (TSX: XETM) invests in securities that will benefit from the use of critical minerals used in clean energy, such as cobalt, copper and lithium. The management fee is 0.55%.

The iShares U.S. Aerospace & Defense Index ETF (TSX: XAD; 0.39% management fee) holds manufacturers of military aircraft and equipment, while the iShares Semiconductor Index ETF (TSX: XCHP; 0.35% management fee) holds manufacturers of semiconductors, which are crucial for artificial intelligence (AI) technology.

The only pure-play AI product in Canada is an Emerge ETF that’s inaccessible due to a cease-trade order. Horizons launched the Horizons Global Semiconductor Index ETF in 2021, which has $43 million in assets.

The iShares S&P U.S. Financials Index ETF (TSX: XUSF; 0.25% management fee) provides exposure to large-cap banks, insurers and credit card companies, while the iShares NASDAQ 100 Index ETF (TSX: XQQU; 0.35% management fee) provides exposure to 100 of the largest non-financial companies listed on the Nasdaq.

National Bank goes small

National Bank Investments Inc. launched a small-cap fund subadvised by Montreal-based PineStone Asset Management Inc.

The NBI Global Small Cap Fund invests in other mutual funds that hold small- and medium-capitalization companies from around the world, with exposure to emerging markets capped at 20%.

The fund has a medium risk rating. The management fee is 1.90% for series A and 0.90% for series F.

‘One-Click’ no more

TD Asset Management Inc. is reducing the fees on its asset-allocation ETFs by doing away with active funds. It’s also changing the funds’ names.

The TD “One-Click” suite will now follow the standard asset allocation nomenclature — becoming, as of this month, the TD Conservative ETF Portfolio, the TD Moderate ETF Portfolio and the TD Growth ETF Portfolio.

The name change comes with a simplified portfolio focused entirely on index funds, whereas the ETFs formerly invested in a mix of active and passive funds. That’s allowed to TD to reduce the funds’ management fees to 0.15% from 0.25%, making them among the cheapest asset-allocation funds in the Canadian market.

While the underlying funds are changing, the asset mixes remain the same: 30% equity and 70% fixed income for the conservative ETF; 60/40 for balanced; and 90/10 for growth.