This ETF tracks the Dow Jones Industrial Average (hedged to Canadian dollars) and uses covered call options to generate additional income. The options are written out of the money, which means the stock is trading below the potential sale price (the strike price). The option premium provides limited downside protection. The underlying portfolio is rebalanced to maintain better representation of the broad market, and options are rolled forward upon expiry.
Income Investor
The Dow has hit new records several times this year, but the fund’s market price is up by only 1.4% over that period. That’s because of the covered call options that are written to generate income. They’re doing just that – the distributions are a steady $0.13 a month, for a yield of 5.7%. But the tradeoff for the good yield is lower capital gains.
Since the point of this newsletter is income, we can live with that. But if you want a fund with more capital gains potential, look elsewhere. - Gordon Pape
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Interactive Performance Chart
ZWA was first recommended here on April 21, 2018