ETFs FAQ

Hamilton ETFs pay distributions on either a monthly or quarterly basis (see fund details table of the respective ETF for more info). Each month, we announce the upcoming distribution amounts, current yields, and anticipated ex-dividend and pay dates in our Press Releases. In general, for our ETFs, the ex-dividend date is the second to last business day of the month, and the payment date for cash distributions is 6 business days after the ex-date.

Yes, all Hamilton ETFs are eligible for DRIP. If you own a Hamilton ETF, you may enroll in the DRIP program by contacting your investment brokerage. Hamilton ETFs administers a Treasury DRIP; whereby enrolled investors automatically have their distributions reinvested in additional shares of the ETF. DRIP shares are issued at a share price equal to the average closing price of the ETF on the Toronto Stock Exchange (TSX) for the five consecutive trading days immediately prior to the applicable payment date. In the event that there were no prices, NAVs are used. Any remaining fractional values are distributed in cash to unitholders instead of fractional shares.

Note, each brokerage has their own criteria for whether they allow DRIP for certain funds. If DRIP isn’t currently available at your brokerage, we recommend you contact them to inquire and request that they make it available. Please note, with certain brokers, there may be a slight delay for DRIP shares to be reflected in your account. We recommend you contact your broker to inquire about any delays.

CLICK HERE to view our Tax Information. The characterization of distributions for tax purposes will not be known until after the ETF’s tax year end. Investors will be informed of the characterization of the amounts distributed for tax purposes only for the entire year and not with each distribution. These amounts will be reported to brokers and relayed to you on official tax statements from your broker. These amounts and proportions may vary from year to year.

For our ETFs that hold Canadian dividend-paying companies, there may be a portion of the total distribution that could be eligible for the Canadian Dividend Tax Credit.

Management Fees are the costs that a unitholder pays to Hamilton ETFs for managing the ETF. The Management Expense Ratio (MER), which is published in our semi-annual and annual financial statements, represents the total cost of an ETF including: management fees paid to manager, taxes, operating expenses such as legal fees, auditing, and administrative costs. For our Enhanced ETFs, the MER also includes the cost of the loan facility (institutional borrowing rates; 25% modest cash leverage). Management Fees and MERs are expressed as a percentage of the fund’s average assets for the year and are deducted on a daily, prorated basis and are reflected in the net asset value of the fund.

It is important to note that performance and yield data published on our website is reported after deducting the MER (i.e., performance, yields, and cash distributions are already net of fees).

Covered Call ETFs aim to generate higher income by investing in a portfolio of stocks while writing/selling call options on a portion of the underlying securities in exchange for a fee/premium.

A call option gives the buyer the right, but not the obligation, to buy a stock at a fixed price within a specific period (typically 1-2 months). The buyer pays a premium to the seller for that right. By selling call options, the portfolio is able to supplement dividend income with additional cashflows in the form of premium income. Covered call strategies are often considered a defensive strategy as equity downside risk is reduced by the option premium in falling markets.

Notably, there is a trade-off between income and growth potential. Writing options caps the upside growth potential of the portfolio that is covered, in exchange for a higher yield.

Distributions from covered call ETFs are generally composed of dividends earned on the underlying holdings and options premiums from writing covered calls, less fees, taxes, and expenses. From a tax perspective, covered call premiums are typically classified as capital gains or return of capital (ROC), which are considered ‘tax efficient’ relative to interest income (see example below for more details).

It is important to differentiate the source of the income being generated from the tax characterization of that income. While individual circumstances may vary, below is a general example.

Covered call option premium, from a tax perspective, is initially considered a capital gain.

• Scenario 1: An ETF with a starting NAV of $10 generates and pays out $1 of option premium in the form of distributions. All else equal, the investor would receive a tax slip with $1 of capital gain, the NAV would remain at $10, and your adjusted cost base (ACB) would be unchanged.
• Scenario 2: An ETF with a starting NAV of $10 generates $0 of option premium and still pays out $1 in distributions. All else equal, the investor would receive a tax slip with $1 in return of capital, the NAV would drop to $9, and your ACB would be reduced by $1.
• Scenario 3: An ETF with a starting NAV of $10 generates and pays out $1 of option premium in the form of distributions. If the ETF had any realized capital or carry forward losses of $1, those could be applied to the option premium capital gain. All else equal, the investor would receive a tax slip with $1 in return of capital, the NAV would remain $10, and their ACB would be reduced by $1.

The above is a simplified example meant to illustrate why investors may see a higher proportion of ROC in covered call ETF tax reporting and help explain the different sources of income. In practice, there are many other factors that can influence the NAV of the fund.