The Biggest Misconceptions About Covered Call ETFs
In this interview, BMO’s Olivia Lee, Director and Portfolio Manager of ETFs, discusses the importance of looking beyond a fund’s distribution yield and focusing on its total return. How total return is what tells you if the distribution rate is sustainable and then she jumps into talking about the Target Cash Flow ETFs which are an innovative product they launched for people wanting a higher distribution yield. The funds use the same strategy as their covered call parent fund, and the total returns are the same. The difference between the two funds is in the distribution rate. You have two versions of the same fund, managed by the same company and using the same strategy but the investor has a different choice to make. With the covered call version they fund keeps more cash in the fund to compound with the target cash flow more of that cash is returned to the investor and the investor choose how much they want to reinvest. As an income investor, this is one of the most important concepts to understand. The higher distribution does not create a higher return or even different return. It simply changes how the return is delivered. Great interview from an active portfolio manager. https://www.youtube.com/watch?v=PU7zlF-ghGA&list=WL&index=65&t=9s
672 views
1 Comments
ETF Go
@etf.go · 17d
Meh. What do Portfolio Managers know. 😂 In all seriousness lots of good points. Especially the risk considerations and impact of leverage during down markets. The combination of down markets, leverage, high fees and big distributions can have a materially negative impact. Hopefully people heed the warning. 🤞👍
See the full comment section 👀Sign up for the full Blossom experience!
