Offering 13 covered call ETFs across a range of strategies covering regions, countries, and sectors, BMO ETFs have you covered.
BMO ETFs has over ten years of proficiency enhancing income from our first covered call ETF launch in 2011. BMO ETFs is the largest Covered Call ETF Provider in Canada¹* with experience across market cycles running ETFs and covered call strategies.
Benefits of Covered Call ETFs
Covered call strategies generate additional cashflow from investments. It also has the added benefit of reducing risk compared to unwritten portfolios making it a valuable portfolio construction tool.
*as compared to an investment that generates an equivalent amount of interest income
² Volatility: Measures how much the price of a security, derivative, or index fluctuates. The most commonly used measure of volatility when it comes to investment funds is standard deviation.
³ Source: Bloomberg Dec 31, 2022 – 1 year volatility of ZWB 15.3, ZEB 15.8
Income & Growth
Growth & Income
How do covered calls work?
A call option is a contract which allows the owner the right to purchase the underlying stock at a predetermined price (the strike price) over a specific time period. Covered Calls work by holding a security and selling (“writing”) a call option on that security. By selling the option, the portfolio receives the call premium which provides additional cashflow compared to only owning the security. The return on the security is capped by the strike price of the call option.
Covered call strategies participate in market appreciation up to the strike price of the options considering the percentage of the overwritten portfolio. Covered call strategies buffer some downside market depreciation based on the additional cashflow. In volatile times, performance will vary based on intra-period market movement.
BMO Covered Calls
BMO Covered Call ETFs strike a balance between generating income and participating in rising markets by writing out-of-the-money call options on approximately half of the portfolio. This approach provides the opportunity to moderately participate in market appreciation while generating additional cashflow.
The BMO ETF Covered Call ETFs generate cashflow from two sources. First is the dividend yield from the underlying securities. Next is the overlay of premium cashflow generated from selling the call options. For certain ETFs, a strong dividend base from the underlying securities means that we can employ a lighter touch and write further out-of-the-money call options to better allow for market appreciation.
Meet Your Team
Omanand Karmalkar, CFA
Omanand is a portfolio manager on the BMO ETF team focusing on equity, derivatives-based and multi-asset portfolios. Prior to joining BMO Asset Management Inc., Omanand was a Portfolio Manager at TD Asset Management on the Asset Allocation team where he provided tactical/strategic portfolio design and ongoing risk management for the fund-of-fund and retirement solutions. He also helped develop new innovative solutions and managed option strategies. He holds a Bachelor of Mathematics from the University of Waterloo and is a CFA Charterholder.
Chris Heakes, CFA, M.Fin
Chris joined the BMO ETF portfolio management team in 2011, and focuses on factor-based equity and derivative-overlay portfolios, including but not limited to BMO’s Low Volatility, Dividend, and Covered Call equity ETF suites. His prior investment experience includes a role as a quantitative equity research associate, and work in investment funds product and client support. Chris holds a Masters of Finance from the University of Toronto, Rotman School of Management (Dean’s List), where he studied investments, including derivatives and derivative pricing. Chris also holds a Bachelor of Arts degree from the University of Waterloo with studies in History and Mathematics and the CFA designation.
Charles-Lucien Myssie, CIM
Charles joined the BMO ETF team as a Portfolio Manager for derivative and equity-based portfolios. He brings over two decades of experience in the investment industry. Prior to joining BMO, Charles served as Portfolio Manager-Trader for seven years, where he managed equity derivatives value-added strategies and helped build the equity derivatives book. More recently, he played a key role as a derivatives sales-strategist with CIBC capital markets covering institutional clients such as pension plans, asset managers and real money accounts for the Quebec market. Charles holds a master degree in Econometrics from the University Paris X, France.
Chris McHaney, CFA
Chris has over two decades of experience in the investment industry and currently serves as portfolio manager for derivative-based and equity-based portfolios. This includes the management and trading of options on Canadian, US & European equities and ETFs. He also manages various cross-asset portfolios, which include Canadian and US fixed income and global equities. He has taken on numerous roles since joining BMO Financial Group in 2002, including Manager of Investments for BMO Asset Management Inc. where he was responsible for mutual fund manager monitoring and selection. In this role, he was also responsible for overseeing the currency hedging program across the mutual fund platform. Chris holds a BBA from York University’s Schulich School of Business and is a CFA charterholder.
Exchange Traded Funds (ETFs)
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You can purchase BMO ETFs through your investing account
or your investment advisor.
Distributions are not guaranteed and may fluctuate. Distribution rates may change without notice (up or down) depending on market conditions. The payment of distributions should not be confused with an investment fund’s performance, rate of return or yield. If distributions paid by an investment fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by an investment fund, and income and dividends earned by an investment fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero. Please refer to the distribution policy for BMO ETF set out in the prospectus.
Cash distributions, if any, on units of a BMO ETF (other than accumulating units or units subject to a distribution reinvestment plan) are expected to be paid primarily out of dividends or distributions, and other income or gains, received by the BMO ETF less the expenses of the BMO ETF, but may also consist of non-taxable amounts including returns of capital, which may be paid in the manager’s sole discretion. To the extent that the expenses of a BMO ETF exceed the income generated by such BMO ETF in any given month, quarter or year, as the case may be, it is not expected that a monthly, quarterly, or annual distribution will be paid. Distributions, if any, in respect of the accumulating units of BMO Short Corporate Bond Index ETF, BMO Short Federal Bond Index ETF, BMO Short Provincial Bond Index ETF, BMO Ultra Short-Term Bond ETF and BMO Ultra Short-Term US Bond ETF will be automatically reinvested in additional accumulating units of the applicable BMO ETF. Following each distribution, the number of accumulating units of the applicable BMO ETF will be immediately consolidated so that the number of outstanding accumulating units of the applicable BMO ETF will be the same as the number of outstanding accumulating units before the distribution. Non-resident unitholders may have the number of securities reduced due to withholding tax. Certain BMO ETFs have adopted a distribution reinvestment plan, which provides that a unitholder may elect to automatically reinvest all cash distributions paid on units held by that unitholder in additional units of the applicable BMO ETF in accordance with the terms of the distribution reinvestment plan. For further information, see Distribution Policy in the BMO ETFs’ prospectus.
Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently, and past performance may not be repeated.
For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
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