BMO Covered Call US Banks ETF (ZWK) 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 US Banks ETF, ticker symbol; ZWK.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.
BMO Covered Call US Banks ETF (ZWK.TO) is the opposite twin of the BMO Covered Call Canadian Banks ETF (ZWB). As the names suggest, the two ETFs focus on the banks of the two countries; Canada and the USA. Both funds invest in the leading banks in the two countries and engage in covered call trading to maximize returns.
According to BMO, the BMO Covered Call US Banks ETF is;
“designed to provide exposure to a portfolio of U.S. banks while earning call option premiums“
| Quick Facts | ZWK.TO |
|---|---|
| Fund inception date | February 15, 2019 |
| Net Assets (Oct 7, 2021) | $207 million |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 6.40% |
| Distribution frequency | Monthly |
| Management expense ratio | 0.71% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
Several drawbacks of the ZWK ETF are that the fund focuses solely on the financial sector and also only within the geographic boundaries of the USA. The US financial sector contains some of the world’s leading banks and hence one could presume it to be ‘bulletproof.’ However, nothing is immune to risks.
One major difference between ZWK ETF and ZWB ETF is that the latter holds a major investment in BMO’s own ‘Equal Weight Banks Index ETF,’ whereas the former invests equally in the shares of the banks as well as in BMO’s Equal Weight US Banks Index ETF.
BMO Covered Call US Banks ETF (ZWK.TO) Holdings
As of the date of this article, ZWK holds 41 positions including equity stocks, covered calls, and cash. Below are the top 20 holdings of the ETF on October 07, 2021.
| Holding Name | Weightage |
|---|---|
| SVB FINANCIAL GROUP | 5.6% |
| CITIZENS FINANCIAL GROUP INC | 5.6% |
| FIFTH THIRD BANCORP | 5.53% |
| REGIONS FINANCIAL CORP | 5.53% |
| M&T BANK CORP | 5.49% |
| SIGNATURE BANK/NEW YORK NY | 5.46% |
| TRUIST FINANCIAL CORP | 5.45% |
| BANK OF AMERICA CORP | 5.45% |
| US BANCORP | 5.44% |
| KEYCORP | 5.42% |
| BMO EQUAL WEIGHT US BANKS INDEX ETF | 5.34% |
| JPMORGAN CHASE & CO | 5.33% |
| PNC FINANCIAL SERVICES GROUP INC | 5.27% |
| HUNTINGTON BANCSHARES INC | 5.22% |
| CITIGROUP INC | 5.16% |
| WELLS FARGO & CO | 5.1% |
| AMERIPRISE FINANCIAL INC | 5.1% |
| FIRST REPUBLIC BANK | 5% |
| GOLDMAN SACHS GROUP INC | 4.76% |
| GOLDMAN SACHS GROUP INC 08Oct2021 430 CALL | 0% |
The ETF is pleasingly diversified among some of the best and biggest banks in the world. These may be some of the safest investments in the world, but the 2007-2008 financial crisis proved that even giant financial institutions such as Lehman Brothers are never fail-safe.
BMO Covered Call US Banks ETF (ZWK.TO) Performance
The ZWK ETF is very new, only having 2 and half years for the fund to perform. So, the 32% growth the fund has seen could have been an overstatement. Regardless, this is an impressive performance. A $10,000 investment in 2019 would have grown to $13,145 by October 2021.
Like all other funds, ZWK took a hit during the height of the pandemic in March 2020. At its lowest, the ETF value reduced to -35%. So from March 2020 to October 2021, the ETF has grown 107%. However, all these periods are too short to evaluate the true performance of the fund over the medium to long term.
The premiums earned on the covered calls in this fund would have definitely helped this accelerate growth.
Is ZWK ETF for You?
ZWK ETF gives an investor exposure to the US financial sector within one fund. While this gives the investors a very solid investment ground, focusing on one sector has its own downfalls. So, it might be wiser to combine ZWK with its Candian twin ZWB ETF for geographical diversification. However, it is noteworthy that a negative effect in the US financial sector would definitely have ripple effects on the Canadian financial sector as well. So, it is always advisable to hold ZWK as part of a larger portfolio of different 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.
