Toronto-based Horizons ETFs has announced the launch of a range of commodity yield ETFs which enable investors to earn a tax-efficient monthly income from exposure to silver, crude oil, natural gas and gold.
Horizons ETFs has launched Canada’s first range of commodity yield ETFs enabling investors to combine the benefits of commodity exposure with income.
One fundamental characteristic of commodities is that they do not provide income. Horizons ETFs gets around this limitation by executing a covered call option-writing strategy on one third of the invested portfolio. The option premiums received provide the income available for distribution.
The strategy begins with a 100% long position in highly liquid commodity ETFs or futures contracts. Two thirds of the portfolio simply remains that way, giving investors full access to the growth potential of the commodity. The remaining third of the portfolio is used to write covered calls at a premium.
Covered calls are options to purchase securities from the portfolio for a limited period of time at a predetermined price. Premiums earned from selling these options results in portfolio income that is available for distribution to investors. Meanwhile, this third of the portfolio still retains some growth potential from the underlying securities providing exposure to the commodity.
“Investing in commodities such as oil, gas and precious metals can offer several advantages to a portfolio. Among them are diversification, growth potential and inflation protection. However, commodities by their nature have never been able to offer one investing staple: income,” said Howard Atkinson, CEO of Horizons ETFs. “These new ETFs will give investors the best of both worlds: exposure to each underlying commodity and tax-efficient income.”
The four new funds are the Horizons Silver Yield ETF (HZY), the Horizons Crude Oil Yield ETF (HOY), the Horizons Natural Gas Yield ETF (HNY) and the Horizons Gold Yield ETF (HGY). They each come with a management fee of 0.85% pa and trade on the Toronto Stock Exchange.
Horizons Investment Management, the manager of the ETFs, will act as investment advisor. Eden Rahim, Vice-President and Options Strategist, forms part of the Horizons investment team providing the portfolio management services to the ETFs.
“Eden and his team have done a great job running our Covered Call ETFs which have raised more than $500 million of new assets in the last year,” said Atkinson. “In our view, Eden has established himself as one of Canada’s pre-eminent covered call experts.”