BMO Covered Call Canadian Banks ETF (ZWB) Review
We have embarked on a journey to explore ‘all’ of the exchange-traded funds (ETFs) created by the BMO Global Asset Management group. They have around 149 ETFs at the moment and the list seems to grow. So, at least we will try to cover the most popular and best-performing ETFs in their portfolio. In this article, we talk about the BMO Covered Call Canadian Banks ETF, ticker symbol; ZWB.TO in the Toronto Stock Exchange (TSX).
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 Covered Call Canadian Banks ETF (ZWB) focuses on the big banks of Canada. It invests in stocks of some of the biggest and strongest banks in Canada and also engages in covered call trading to maximize returns. Although these banks do pay juicy dividends, the investors in ZWB will be able to enjoy a higher-than-usual yield thanks to these covered call options trading by the fund managers.
| Quick Facts | ZWB.TO |
|---|---|
| Fund inception date | January 28, 2011 |
| Net Assets (Oct 5, 2021) | $2.3 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 5.80% |
| Distribution frequency | Monthly |
| Management expense ratio | 0.72% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
According to BMO, BMO Covered Call Canadian Banks ETF is;
“designed to provide exposure to a portfolio of Canadian banks while earning call option premiums”
Several drawbacks of this ETF are that it lacks diversification across sectors and geographies. ZWB only focuses on the banks in Canada, which limits its scope to the financial sector and only to Canada. Although the financial sector is one of the strongest sectors out there, nothing is immune to risks. Hence, this ETF is categorized as medium-risk by MBO.
Since the ETF invests in other funds held by BMO themselves, they manage to keep their costs low. BMO only charges a small management expense ratio of 0.72% in this ETF.
BMO Covered Call Canadian Banks ETF (ZWB) Holdings
As of the date of this article, ZWB holds 36 positions including stocks, other ETFs of BMO, and covered call options. They also hold about $5.8 million in cash for liquidity purposes. Below is a list of the top 20 holdings of ZWB as of this article.
| Holding Name | Weightage |
|---|---|
| BMO EQUAL WEIGHT BANKS INDEX ETF | 26.99% |
| TORONTO-DOMINION BANK | 12.59% |
| NATIONAL BANK OF CANADA | 12.36% |
| BANK OF MONTREAL | 12.16% |
| BANK OF NOVA SCOTIA | 12.03% |
| CANADIAN IMPERIAL BANK OF COMMERCE | 11.91% |
| ROYAL BANK OF CANADA | 11.89% |
| ROYAL BANK OF CANADA 15Oct2021 135 CALL | 0% |
| BANK OF NOVA SCOTIA 15Oct2021 82 CALL | 0% |
| CANADIAN IMPERIAL BANK OF COMM 15Oct2021 151 CALL | 0% |
| BANK OF NOVA SCOTIA/THE 08Oct2021 80.5 CALL | 0% |
| BANK OF MONTREAL 15Oct2021 135 CALL | 0% |
| ZEB CN 10/13/21 C37.3 | 0% |
| TORONTO-DOMINION BANK 08Oct2021 85.5 CALL | 0% |
| NATIONAL BANK OF CANADA 22Oct2021 102 CALL | 0% |
| TORONTO-DOMINION BANK 05Nov2021 87.5 CALL | 0% |
| BANK OF NOVA SCOTIA/THE 29Oct2021 80 CALL | 0% |
| ZEB CN 10/28/21 C37.1 | 0% |
| BMO EQUAL WEIGHT BANKS INDEX E 15Oct2021 38 CALL | 0% |
| TORONTO-DOMINION BANK 15Oct2021 86 CALL | 0% |
The covered calls held in this portfolio are minuscule in value to reduce heavy reliance on these, which are inherently riskier. The highest percentage of investment is in BMO’s own ETF of banks (ZEB.TO).
BMO Covered Call Canadian Banks ETF (ZWB) Performance
ZWB ETF has had a good enough time to grow investors’ money since its inception. In the 10+ years of its existence, ZWB has been able to yield 161%, which is very impressive, to say the least. A $10,000 investment in 2011 would have grown into $26,100 by 2021, with distributions reinvested into the fund.
Much like every other ETF in BMO’s portfolio (and possibly everywhere else in the world), the ETF took a hit during the height of the pandemic in March 2020. However, ZWB quickly recovered and continued its previous momentum ever since.
Even considering the history of this ETF from a year back, it has produced 38% returns, which is quite high.
Is ZWB ETF for You?
If you are looking to take on some risk with your money in exchange for accelerated growth, ZWB might be a good ETF for you. This ETF pays a monthly dividend if you are looking for a monthly passive income source as well. ZWB is an all-around very good ETF that most income-focused investors hold in their portfolios. However, this is not to say that the ETF is heavily relying on the Canadian financial sector. So, it is always advisable to hold ZWB as one part of a larger portfolio of investments.
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.
