Many retired investors are finding their savings just don’t go as far as they used to. It’s hard to turn dollars into income when risk-free assets yield 1-2% annually. Investors must either take more risk or spend less money.
One way investors can get a nice yield is to diversify into covered call ETFs. These ETFs hold shares of Canada’s finest blue-chip companies, and then use options to increase the income generated by these companies. This can translate into some impressive yields.
Bank of Montreal (TSX:BMO)(NYSE:BMO) dominates this market with its ETF offerings. The largest is its Covered Call Canadian Banks ETF (TSX:ZWB) which has a market cap of more than $1.1 billion.
This ETF has a simple mandate. It holds shares of the six largest Canadian financial institutions and then uses covered calls to further increase income from these holdings. The strategy is working, with a trailing 12 month yield of 5.4%.
Shares of this ETF are up 2.65% over the last 12 months, which approximately matches the performance delivered by Canada’s largest banks.
The BMO Covered Call Utilities ETF (TSX:ZWU) has been a better choice, at least from an income perspective. It currently has a 12-month trailing yield of 6.7%, an impressive number in today’s low interest rate world.
It has also performed relatively well of late, increasing by more than 13% thus far in 2016. This largely matches the performance of Canada’s largest power providers.
