The investment landscape for fixed income has changed since the September 2024 launch of our Hamilton U.S. T-Bill YIELD MAXIMIZER™ ETF (HBIL, HBIL.U). As we navigate uncertain times, we are adjusting HBIL to support a more resilient approach for investors seeking higher income in a shorter duration fixed income product.

HBIL was designed to provide a yield advantage over short-term U.S. Treasury bills, while maintaining a close relationship to the underlying rate environment. HBIL’s portfolio invests ~80% in short-term U.S. Treasury bills, via the iShares 0–3 Month Treasury Bond ETF (SGOV), and ~20% in long-term U.S. Treasury bonds, via the iShares 20+ Year Treasury Bond ETF (TLT).

The long-bond allocation enables HBIL to generate incremental income through covered call writing but also introduces additional volatility.

An Uncertain Path for Long-Term Interest Rates

In the current environment, there are two competing views shaping expectations for long-term interest rates:

• Higher for longer: Elevated government debt levels, persistent inflation, and strength in commodities could continue to put upward pressure on interest rates.
• Structural lower rates: Aging demographics and softer aggregate demand may support continued demand for fixed income, which could lead to lower long-term rates over time.

This divergence in views makes maintaining some ability to participate in different rate outcomes more important, particularly for the long-term bond component of the portfolio.

Adapting to a Range of Interest Rate Outcomes

At launch, HBIL employed a fully covered call strategy on its long-bond allocation, writing calls on ~100% of the TLT position, or ~20% of the overall portfolio. This approach generated attractive option premium income, but limited participation when long-term bonds rallied.

To better align the strategy with the current environment, we have reduced the covered call coverage to ~50% of the long-bond allocation, or ~10% of the overall portfolio. We expect this to provide HBIL with meaningful option premium income, albeit lower than before, while allowing for greater participation in potential upside, thereby improving HBIL’s ability to respond to a wider range of interest rate outcomes.

The Impact of Currency Hedging

Currency hedging is used to reduce the impact of exchange rate movements on a portfolio. For HBIL’s CDN$ Hedged Units, this means hedging U.S. dollar exposure back to Canadian dollars, helping ensure that returns are driven primarily by the underlying fixed income investments rather than currency fluctuations.

When a portfolio is hedged, differences in interest rates between the two countries are embedded in the forward contracts used for hedging and become part of the ETF’s overall return profile. In practical terms, higher U.S. interest rates relative to Canadian rates reduce the ETF’s total return.

In the current environment, this dynamic is having a negative impact on HBIL, whereas HBIL.U (the US$ Unhedged Units) does not hedge and is therefore unaffected. Since it is unclear when the gap between Canadian and U.S. rates will narrow, we are reducing HBIL’s distribution to reflect this ongoing cost of hedging. It is important to note that this relationship can reverse. If Canadian interest rates are higher than U.S. rates, the same mechanism would contribute positively to total returns, supporting HBIL’s income profile.

 

Summary of Changes and Impact on Distributions

To recap, HBIL’s:

• covered call coverage has been reduced to allow for greater participation in potential upside and to support a more flexible approach across different interest rate outcomes. This results in lower option premium income and lower distributions for both HBIL and HBIL.U; and
• currency hedging is reducing returns for the CDN$ Hedged Units in the current environment, a phenomenon we are more explicitly reflecting in HBIL’s distribution, resulting in a further reduction. HBIL.U is not affected.

We believe these changes represent a more sustainable and adaptable approach for the Hamilton U.S. T-Bill YIELD MAXIMIZER™ ETF (HBIL, HBIL.U), preserving meaningful income above the Canadian risk free rate while improving the ETF’s ability to participate in a broader range of interest rate outcomes.

 

Table: Monthly Distributions (HBIL / HBIL.U)

Fund	Ticker	Distribution Per Unit (February 2026)	Distribution Per Unit (March 2026)
Hamilton U.S. T-Bill YIELD MAXIMIZER™ ETF	HBIL (CDN$ Hedged)	$0.075	$0.055
Hamilton U.S. T-Bill YIELD MAXIMIZER™ ETF (USD)	HBIL.U (US$ Unhedged)	$0.080	$0.075

 

Distributions are not guaranteed and are subject to change and/or elimination depending on market conditions.

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