BMO Covered Call Utilities ETF (ZWU) 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 keeps on growing. 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 Utilities ETF, ticker symbol; ZWU.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 Utilities ETF is part of BMO’s specialty income class of funds that have the primary objective of generating incomes for the investors. To achieve this objective, ZWU ETF invests in some high-yield stocks–specifically focusing on the utility sector.
Why the utility sector? These are the companies that provide the utilities in your home such as electricity, gas, and water. These are, still, mostly centered around the extraction or generation of energy through natural resources around us. Although the industry is heavily regulated, these companies usually earn big profits. As such they treat their investors well through the distribution of their profits by means of dividends. Some of the highest-yielding dividend stocks in Canada are in the utility sector.
According to BMO, ZWU ETF is;
“designed to provide exposure to an equal weight portfolio of utilities, telecoms and pipeline companies, while earning call option premiums.”
On top of the juicy earnings from the utility sector companies, this fund earns premium incomes through engaging in covered call options.
| Quick Facts | ZWU.TO |
|---|---|
| Fund inception date | October 20, 2011 |
| Net Assets (Oct 8, 2021) | $1.3 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 7.6% |
| Distribution frequency | Monthly |
| Management expense ratio | 0.71% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
ZWU fund is decently diversified among the utility sector companies in the USA and Canada. However, this does not discount it from the limited industrial and geographical diversification.
BMO ranks ZWU ETF in the low to medium risk category. This is most likely due to the fact that it holds over 23 companies within the utility sector, which grants a decent level of diversification.
Around 6% of this ETF is invested in BMO owned fund BMO Equal Weight Utilities Index ETF (ZUT) — another collection of companies in the utility sector.
Despite engaging in covered call options trading and managing over 23 companies within this fund, BMO has a Management Expense Ratio of 0.7% on ZWU ETF. This is not the lowest out there, but compared to the massive 7.6% annualized yield, it is pretty negligible.
BMO Covered Call Utilities ETF (ZWU) Holdings
As we mentioned before, the ZWU fund holds around 23 different companies in the utility sector, one ETF, a whole lot of different covered call options, and some cash. Below is a list of the top 20 holdings of the fund as of October 12, 2021.
| Holding Name | Weightage |
|---|---|
| BMO EQUAL WEIGHT UTILITIES INDEX ETF | 5.87% |
| TRANSCANADA CORP | 5.18% |
| PEMBINA PIPELINE CORP | 5.17% |
| ENBRIDGE INC | 5.12% |
| ROGERS COMMUNICATIONS INC | 5.00% |
| FORTIS INC/CANADA | 4.96% |
| BCE INC | 4.87% |
| TELUS CORP | 4.83% |
| PPL CORP | 4.46% |
| DUKE ENERGY CORP | 4.44% |
| EXELON CORP | 4.36% |
| SOUTHERN CO/THE | 4.28% |
| VERIZON COMMUNICATIONS INC | 4.14% |
| AT&T INC | 4.08% |
| EMERA INC | 3.89% |
| HYDRO ONE LTD | 3.86% |
| BROOKFIELD INFRASTRUCTURE PARTNERS LP | 3.53% |
| ALGONQUIN POWER & UTILITIES CORP | 3.43% |
| CANADIAN UTILITIES LTD | 3.17% |
| NORTHLAND POWER INC | 3.10% |
Anyone familiar with the income investments in the USA and Canada will be able to recognize most of the names above.
Enbridge Inc. is a leading dividend payer in the Toronto Stock Exchange (TSX) with a yield of 6.4% at the time of this article. PPL Corporation is a popular dividend stock in the New York Stock Exchange (NYSE) with over 5.8% yield right now. Verizon is a giant telecommunications company from the NYSE with over 4.99% yield right now. All the other companies on the list have a good track record of generating high returns for their investors.
The largest single holding in this ETF is BMO’s own Equal Weight Utilities Index ETF (ZUT). This fund holds around 15 companies in the utility sector, most of which are replicated within ZWU as well.
BMO Covered Call Utilities ETF (ZWU) Performance
ZWU ETF has been around for ten years by now. This gives us a good enough time period to rely on the performance it has delivered so far.
In the decade of its existence, the ZWU fund has been able to generate a total return of 64% over its lifetime. A $10,000 investment in the fund in 2011 would have grown to a massive $16,400 by October 2021. This is a very respectable return, quite close to doubling your value.
Is ZWU ETF for You?
If you are an investor looking to maximize monthly returns with a relatively low-risk investment, the ZWU fund might be for you. It gets you exposure to the utility sectors in the US and Canadian markets. While this sector saw some volatility during the 2019-2021 pandemic, it is usually a very stable sector with an ever-increasing demand. ZWU could be a definite winner in the long run with very attractive monthly distributions to keep you invested.
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.
