I was wondering how ETFs work exactly. The BMO Covered Call Canadian Banks ETF (ZWB) is on pace to pay out over 8% this year. The banks and the other ETF that make up the Fund pay out closer to 4%. How can the fund pay out twice as much as its holdings?
Hi James,
You get the 3% average yield from the top six Canadian bank stocks and then they use a Writing Covered Call Strategy to get the rest. When times are volatile like they are know, they collect more premium from the calls. The distribution won’t stay the same over time but is perfect for times like today.
Here is a link to learn more about the Covered Call Strategy. Option in my opinion are one great way to make a return in these trying markets.
I was wondering how ETFs work exactly. The BMO Covered Call Canadian Banks ETF (ZWB) is on pace to pay out over 8% this year. The banks and the other ETF that make up the Fund pay out closer to 4%. How can the fund pay out twice as much as its holdings?
Hi James,
You get the 3% average yield from the top six Canadian bank stocks and then they use a Writing Covered Call Strategy to get the rest. When times are volatile like they are know, they collect more premium from the calls. The distribution won’t stay the same over time but is perfect for times like today.
Here is a link to learn more about the Covered Call Strategy. Option in my opinion are one great way to make a return in these trying markets.
http://www.investopedia.com/terms/c/coveredcall.asp#axzz1Z7ZPARb7