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    • Best Covered Call ETFs in Canada 2023: Earn High Yields With Call Options

    Covered calls are an advanced options strategy that traders utilize to generate income by selling call option contracts. In this strategy, an investor who owns at least 100 shares of stock sells call options on those shares, collecting premiums from the contracts. The goal is to profit from these premiums while hoping that the stock’s price remains below the option’s strike price. If the stock price exceeds the strike price, the call option buyer can exercise the contract, and the seller must sell their 100 shares at the option’s strike price.

    Covered call ETFs simplify this strategy for investors. These ETFs are managed by companies like BMO Global Asset Management and CI Global Asset Management, which handle the complex work of selling covered call options. Investors can buy shares of these ETFs to receive quarterly or monthly distributions that include the premiums earned from the options. The ETF providers profit from transaction fees and expense ratios.

    In this article, we will discuss ten Canadian-covered call ETFs that you can consider for your portfolio in 2023.

    Top Canadian Covered Call ETFs for 2023:

    1. BMO Covered Call Canadian Banks ETF (ZWB.TO)

    • Net Assets: $2.88 billion
    • Distribution Yield: 7.70%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $17.10 – $20.03
    • 5-Year Annual Average Return: 4.30%
    • Management Expense Ratio (MER): 0.71%
    • ZWB.TO sells covered calls against positions in major Canadian banks, including BMO, RBC, National Bank, Toronto Dominion, CIBC, and the Bank of Nova Scotia.
    • Shareholders receive a monthly distribution of $0.11 per share as of June 2023.

    2. CI Energy Giants Covered Call ETF (NXF.TO)

    • Net Assets: $301 million
    • Distribution Yield: 12.95%
    • Distribution Frequency: Quarterly
    • 52-week Price Range: $5.14 – $6.78
    • 5-Year Annual Average Return: 0.7%
    • MER: 0.71%
    • NXF.TO sells covered calls on Canadian global energy stocks, holding 15 of the largest energy companies worldwide.
    • Shareholders received a quarterly distribution of about $0.14 per share in June 2023.

    3. BMO Canadian High Dividend Covered Call ETF (ZWC.TO)

    • Net Assets: $1.6 billion
    • Distribution Yield: 8.00%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $16.15 – $18.59
    • 5-Year Annual Average Return: 4.17%
    • MER: 0.72%
    • ZWC.TO focuses on selling covered calls for the top 103 dividend-paying stocks on the TSX.
    • Shareholders received a $0.11 distribution in June 2023.

    4. Purpose Healthcare Innovation Yield Fund ETF (HEAL.TO)

    • Net Assets: $5.4 million
    • Distribution Yield: 8.21%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $18.59 – $21.00
    • 5-Year Annual Average Return: N/A
    • MER: 1.11%
    • HEAL.TO, established in 2022, holds 55 American healthcare stocks.
    • Shareholders receive a strong yield of 8.21% from covered call options written against the holdings.

    5. Horizons Equal Weight Canadian Bank Covered Call ETF (BKCC.TO)

    • Net Assets: $15.7 million
    • Distribution Yield: 8.35%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $14.18 – $16.58
    • 5-Year Annual Average Return: 2.18%
    • MER: 0.85%
    • BKCC.TO sells covered calls for the six largest Canadian banks, including Royal Bank, Toronto Dominion, National Bank, Bank of Montreal, CIBC, and Bank of Nova Scotia.
    • Shareholders received a monthly distribution of about $0.10 per share in June 2023.

    6. CI HealthCare Giants Covered Call ETF (FHI)

    • Net Assets: $87.34 million
    • Distribution Yield: 5.61%
    • Distribution Frequency: Quarterly
    • 52-week Price Range: $10.83 – $12.53
    • 5-Year Annual Average Return: N/A
    • MER: 0.71%
    • FHI covers healthcare stocks globally, with a significant allocation to US equities.
    • Shareholders receive a generous quarterly distribution based on covered call options.

    7. BMO US High Dividend Covered Call ETF (ZWH.TO)

    • Net Assets: $1.01 billion
    • Distribution Yield: 5.70%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $19.75 – $23.05
    • 5-Year Annual Average Return: 7.31%
    • MER: 0.72%
    • ZWH.TO tracks high-dividend-paying US stocks, including Apple, Home Depot, JPMorgan Chase, and Microsoft.
    • Shareholders received a monthly distribution payment of about $0.10 per share in June 2023.

    8. Purpose Investments Tesla Yield Shares ETF (YTSL.TO)

    • Net Assets: $42.7 million
    • Distribution Yield: N/A
    • Distribution Frequency: Monthly
    • 52-week Price Range: $16.91 – $30.11
    • 5-Year Annual Average Return: N/A
    • MER: 0.58%
    • YTSL.TO offers exposure to Tesla (TSLA) stock without the need for US dollar investments.
    • Shareholders received a monthly distribution of $0.30 per share in 2023.

    9. Horizons Canadian Large Cap Equity Covered Call ETF (CNCC.TO)

    • Net Assets: $35.3 million
    • Distribution Yield: 9.87%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $11.76 – $13.14
    • 5-Year Annual Average Return: 4.10%
    • MER: 0.84%
    • CNCC.TO tracks the largest Canadian companies, offering monthly distribution payments.
    • Shareholders received a monthly payment of $0.10 per share in June 2023.

    10. Horizons NASDAQ-100 Covered Call ETF (QQCC.TO)

    • Net Assets: $136 million
    • Distribution Yield: 11.87%
    • Distribution Frequency: Monthly
    • 52-week Price Range: $8.99 – $11.20
    • 5-Year Annual Average Return: 4.67%
    • MER: 0.90%
    • QQCC.TO sells covered calls for the NASDAQ-100 Index ETF, providing exposure to leading American tech companies.
    • Shareholders received a monthly distribution of about $0.10 per share in June 2023.

    How to Buy Covered Call ETFs in Canada:

    Investors can purchase covered call ETFs through various discount brokerages, such as Questrade, Qtrade, and Wealthsimple Trade, which offer low or no commission fees for ETF trades.

    Are Covered Call ETFs a Good Investment?

    Covered call ETFs can be a valuable addition to your portfolio, especially if you seek consistent income. These ETFs offer a way to generate cash flow through options trading without directly engaging in options contracts. However, their prices tend to exhibit minimal volatility and may not provide significant capital growth. Investors should assess their specific goals and risk tolerance when considering covered call ETFs.

    Pros and Cons of Covered Call ETFs:

    Pros:

    • Diversification of income sources.
    • Stable, predictable distributions.
    • Effective in hedging against market volatility.
    • Can be used for income generation and compounding.

    Cons:

    • Limited capital growth potential.
    • Not suitable for investors seeking high price appreciation.
    • Distributions may be subject to taxation in non-registered accounts.

    Are Covered Call ETFs Safe?

    Yes, covered call ETFs are generally considered safe, particularly in volatile markets. They provide regular income, which can help offset market instability. However, as with any investment, investors should conduct thorough research and consider their financial objectives and risk tolerance.

    FAQs:

    Are covered call ETFs taxed in Canada?

    • Taxation of covered call ETFs in Canada depends on the type of account in which they are held. In a Tax-Free Savings Account (TFSA), distributions and capital gains are typically not taxed. However, in a non-registered investment account, distributions may be taxed as income.

    Does Vanguard offer a covered call ETF in Canada?

    • No, Vanguard does not currently offer a covered call ETF for Canadian investors. The primary providers of covered call ETFs on the TSX are BMO, Horizons, and CI.
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