Not long ago, I had decided to try my best to stay on the sidelines of the CC ETF debates. That is still my plan, but I’m making one post to express myself. I truly believe these are not the right instruments for most people. Or for anyone tbh. I worry about the impacts it will have on their long term portfolio total total returns. It was exhausting debating people who would ultimately resort to analogies instead of facts to back their claims. Many others had already posted a plethora of content which I thought would be sufficient to settle any debate. Or at least I assumed any person who read it with an open mind, and put in the time researching, would see the light eventually. But it seems this assumption was false. Being able to filter out the passive income topic made this much easier. I will admit, I had a hard time scrolling past some of the mind blowing garbage I would see. But then I got triggered at the Blossom Toronto event with the CC ETF content promotion. Some dude gets on stage and gives a speech trying to sell his book, HHIS and HHIC. I didn’t come to this event to hear this crap. I wanted a speech from anyone else, whether it be the OG influencers, or some of the bigger names on the panels. Clearly these providers are huge sponsors to Blossom. Which is fine, I won’t make judgements there. I don’t know their long term business plan, I am not an investor, I just like the app. It disgusts me, but that's my opinion. Being able to freely express any opinion is important. Then the 🐐 came out with some of his well made videos on CC ETFs recently. I assume partly because of what he saw at the event. He elegantly made arguments backed by facts. I even learned a couple things, such as his withdrawal example where holding 20-30% cash can produce the same result. But this sparked another round in the CC ETF versus non CC ETF narrative. I fully 100% believe there is enough data and information available to us in such a way that this debate is settled in terms of long term total returns. I am confident that I could have a debate with anyone, and eventually find the flaws in their logic. BUT - I do understand there can be a psychological component which is appealing for people. This is not grounded in data or research, but they’ve rationalized the use of these instruments in a way that works for them. I am perfectly OK if this is the reason you invest in these. With the caveat being that you will learn the hard way in the long run. What I am not ok with, is people who refuse to acknowledge the limitations and tradeoffs of these instruments. Who instead double down, go on the attack, and propagate false information throughout this community. Which I fear gets consumed by novices. Just like a virus, clinging to new hosts. ❗DISCLAIMER❗: I dabbled in these back around 2021 - 2022. Yes you heard me right - I had invested in these at one point. These products were hot off the press, the appeal was intriguing, and the claims they were making seemed feasible. I watched a lot of Adriano’s YouTube videos. I continued to learn, and the flaws started to become more obvious. This was aided by the 2022 drawdown, where the “offset of the downside” claim was totally debunked. There were videos being created by some respectable content creators like @stocktrades showing this. There is a reason that essentially any CC ETF fund created before 2022 is not talked about today. But these providers keep on coming out with new stuff. Almost like a smokescreen. Apply leverage here, do a different sector here, do a single stock ETF here. Release a fund listed in CAD, where it's hard to compare to similar products that are in USD. etc. etc. The biggest problem is comparing a leveraged fund versus an unlevered fund. Since 2022, it's been an incredible bull market. 20%+ each year. In my recent discussions, this is one of the main arguments used to support these funds. “$HDIV outperformed the underlying”. Well no, they outperformed the unlevered benchmark they use. Where the benchmark of the TSX60 index is not totally an apples to apples comparison. HDIV is an ETF of ETFs that is sorta close. Or, you can apply 1.25x leverage to the index fund, and essentially get the same performance comparison. With way less risk and downside. With likely a cheaper cost of borrowing, and definitely wayyyy less fees. But the thing I want to highlight is what will happen in the next true downturn or bear market. They are going to get hosed, just like all that went through the small 2022 downturn. Or like in Ben Felix’s videos, the ones that do have long term data of around 10 years have SIGNIFICANTLY underperformed their underlying. You can't take 3 years of performance in a bull markets and extrapolate that out into the perpetual future. You are putting horse blinders on, and ignoring the long term data available to you. Same thing apples to something like $HHIS. If you can somehow scoff at a 3% CAGR difference per year over a decade, then you don’t understand the true power of compounding. High yield feels good – until compounding reminds you who’s boss. Cheers
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255 Comments
Brett
@birdmanbrett · 1yr
Well said Michael. I have seen the light and have begun to take profits on my cc etfs and rotate into regular etfs. I am on the way to recovery and sure glad I got rid of my microstrategy products months ago.
Adriano Starinieri
@adrian_pii · 1yr
Another post pooping on covered call etfs.. How original 🥱
Paul Santori
@paulsantori · 1yr
I find it interesting that you refer to Michael Kovacs as some dude!! What a lack of respect for a successful Canadian entrepreneur who sponsored the Blossom event you attended. Yet you suck up to Ben Felix because he shares your investment philosophy! If he’s the goat how come he didn’t step up and sponsor the event?
Ben
@fryloc77 · 1yr
I understand your comment. But doesn't it all depend on the investor and their situation? If you are in retirement and need income then these are perfect bc they aren't cared about price. Me personally, I am in hybrid. I am creating an income portfolio but I have a growth one as well and my wife's is growth. I also tend to stay away from yieldmax and try to get the better quality ones. So far I have income and growth in most of my cc funds. Overall, I think a lot has to do with your own situation. I also think it's great to have mature discussions, debates without people resorting to insults. Always great to see both sides. All the best.
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