Both HCAL and HMAX are fairly new ETFs.All of their assets are connected to the Canadian big 6 banks and a few large insurance companies.But their connection to them is quite different.HMAX is a covered call ETF while HCAL purchases varying amounts of the underlying assets.
HMAX is Newer
HMAX has only been around since 2010.And it has got a fairly new and modern investment strategy.It puts 30-50% of it's investment funds into covered calls.This means that the fund sells it's stock as an option and picks up the premium on it's stock as income.But only 30-50% of it's shares become a written option.This gives HMAX more income and it has a quite high dividend.For example, the present dividend is 13.59% when 6% is considered a good,healthy dividendWhile it's annual return is a modest 25.90%.It's a juggling act.
Covered call ETFs is a fairly new instrument.But they are becoming more popular.As the money obtained from the option boosts their income as well as their dividend.Consequently covered call ETFs have a dividend usually quite larger than an ordinary ETF.However the stock price on the portion which has a written option is constrained by the premium on the covered call.Only the unconstrained part of the ETF is able to get the growth in the value of the stock.It is up to the investor to find out what percentage of the ETF is tied down with a written option.Some ETFs reduce potential growth in order to increase income available for dividends.
HCAL has an excellent Performance in 2025 HCAL uses 100% of it's funds to buy the underlying assets.And all of these assets are either from the BIG 6 Canadian banks or very large insurance companies like Manulife.As the underlying assets go up in value, the value of HCAL goes up.Last year HCAL had an annual return of 45%(including dividends).Considerably better than that earned by HMAX.And HCAL has had a recent surge as the Q2 financial reports were,on average, better than expected. but not by as much.And yet the surge has also brought HMAX up in value.
Going Forward
It seems logical that the performance in the second half of 2025 should be the same as in the first half.But the rather stellar performance of HCAL came as a result of the robust performance of primarily 2 banks,namely the TD Bank and the Royal Bank.Although BMO,Scotiabank and CIBC contributed also.It appears to this blog that the business cycle is winding down gradually and the banks will be affected albeit only slightly.For example,Statistics Canada which this blog considers quite reliable forecasts economic growth in Q3 and Q4 at 1 to 2% and then gradually moves up to higher growth rates in 2026. The drop in momentum may shave the earnings especially of the two big gainers -TD and Royal Bank.However look for earnings to drop for all 6 banks and this to cut into the growth of HCAL.While HMAX will have less of a drop and may use income from it's covered calls to raise it's substantial dividend.This will act to raise the price of HMAX which at present is about half the price of HCAL.In summary,both will perform well but it is likely that HMAX will show greater positive changes.HMAX will fall less or maybe show a slight gain in Q3and Q4.HCAL could easily show a robust loss in Q3and .But in Q1 2026 or maybe Q2, HCAL will put forward bigger gains on the table.
Dale Mcintyre is a freelance writer who writes primarily for Zacks and Yahoo Finance.
e
No comments:
Post a Comment