BMO Canadian High Dividend Covered Call ETF (ZWC) Review
In a previous article, we talked about the BMO Conservative ETF. Taking a complete 180 degrees, we come to the high-growth funds. This article is a rundown of BMO’s Canadian Dividend Covered Call ETF (ticker: ZWC).
BMO Global Asset Management (BMO GAM) is a family member of the Bank of Montreal, Canada’s first bank. The company holds a massive portfolio of exchange-traded funds (ETFs) that fit different investment goals of their customers. From low-risk funds to high-risks and from moderate incomes to high incomes, they have funds that fit all your investment needs. A smart investor will invest in a collection of these ETFs to manage risk and increase yield.
The BMO Canadian High Dividend Covered Call ETF is one of BMO’s best-performing funds. And high performance usually comes at the cost of some risk. BMO categorizes this ETF as a medium-risk fund, possibly due to tunneling down on high dividend payers in Canada and that too being in Canada only.
| Quick Facts | ZWC.TO |
|---|---|
| Fund inception date | February 09, 2017 |
| Net Assets (Oct 5, 2021) | $1.1 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 6.52% |
| Management expense ratio | 0.72% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
According to BMO, this is what an investor can expect to gain by investing in ZWC;
“designed to provide exposure to a dividend focused portfolio, while earning call option premiums”
What this means is that on top of holding some dividend-paying stocks, the fund managers engage in an investment strategy named ‘covered calls options trading‘ to generate additional incomes from the portfolio. This is why ZWC is able to provide an amazing yield of 6.52% per annum.
BMO Canadian High Dividend Covered Call ETF (ZWC) Holdings
As the name of this ETF suggests, this fund holds some of the best dividend-paying companies in Canada. Yes, the 100% geographical allocation is in Canadian stocks, which can be perceived as riskier. However, they mitigate this risk by investing in a massive number of companies.
ZWC holds investments in 90 companies from the Canadian stock market. It also holds a couple of million dollars in cash for liquidity. Below is a list of the fund’s top 20 holdings as of October 5, 2021.
| Holding Name | Weightage |
|---|---|
| CANADIAN NATIONAL RAILWAY CO | 5.45% |
| ENBRIDGE INC | 5.17% |
| CANADIAN IMPERIAL BANK OF COMMERCE | 4.93% |
| ROYAL BANK OF CANADA | 4.91% |
| BCE INC | 4.89% |
| TORONTO-DOMINION BANK | 4.86% |
| BANK OF NOVA SCOTIA | 4.73% |
| TELUS CORP | 4.58% |
| MANULIFE FINANCIAL CORP | 4.39% |
| NUTRIEN LTD | 4.38% |
| BANK OF MONTREAL | 3.91% |
| TRANSCANADA CORP | 3.21% |
| THOMSON REUTERS CORP | 3.15% |
| SUN LIFE FINANCIAL INC | 2.96% |
| POWER CORP OF CANADA | 2.81% |
| FORTIS INC | 2.77% |
| ROGERS COMMUNICATIONS INC | 2.77% |
| CANADIAN NATURAL RESOURCES LTD | 2.40% |
| BROOKFIELD ASSET MANAGEMENT INC | 2.27% |
| GREAT-WEST LIFECO INC | 2.16% |
All the companies above are sizable Canadian companies with a strong track record in past performance and dividend payments. These names usually appear in the conversations of ‘Canadian high-dividend companies.’
Looking at the sector allocation of ZWC, almost 40% of the funds are invested in the financial services sector. This is followed by 14% in the energy sector, 13% in the communications sector, 10% in the utilities sector, and the balance in industrial, material, and consumer sectors. This represents a very good level of diversification among sectors.
BMO Canadian High Dividend Covered Call ETF (ZWC) Performance
In the four years of this funds existence, it has been able to deliver a total return of 25.8% on investment since inception. A $10,000 invested at the beginning of the fund would have grown to $12,580 today. Keep in mind that four years is quite a short time frame when talking about long-term investing.
However, this does not essentially capture the real performance of the ETF as it took a dive into a negative 26.8% return in March 2020 due to the pandemic. In summary, ZWC has recovered from a -26.8% to a positive 25.8% in one year and five months. The resilience of this fund is quite impressive.
Is ZWC ETF for You?
If you are looking to maximize your dividend earnings from the Canadian stock market, ZWC ETF is a safer bet. The fund gives you exposure to some of the biggest companies in Canada those who also pay high dividends. BMO categorizes this fund as medium-risk. But, one can make a strong case about the fund’s diverse holdings. The fund’s one major shortcoming is that it has no exposure to foreign markets outside of Canada, so will be heavily relying on the performance of Canada’s economy.
Check out the latest information about the fund on BMO.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
