Fixed income investments, such as bonds, have long been favoured by investors for their stability and income-generating potential. However, with rising costs of living and a growing senior population, more and more Canadians are seeking innovative ways to boost their monthly income without taking on excessive investment risk.

In September 2023, we launched Canada’s 1st covered call bond ETF[1], the Hamilton U.S. Bond YIELD MAXIMIZER™ ETF (ticker: HBND), which is designed to help investors maximize their monthly income above what is typically offered by bonds, without taking on additional credit risk. Specifically, HBND combines the strength and security of U.S. treasuries with the higher income and tax efficiency from a covered call strategy.

HBND — One Year Later

• Attractive current yield: 10.32% (paid monthly)[2]
• Annualized Total Return of +6.75% since inception[3]
• Assets under management (AUM) of $180 million[3]
• Launched US$ Unhedged units (HBND.U) in August 2024

Performance (as at September 30, 2024)

 

TICKER	YIELD2	1 MONTH	3 MONTH	6 MONTH	YTD	1 YEAR	INCEPTION*
HBND	10.32%	2.11%	7.09%	5.10%	2.69%	11.24%	6.75%

*Annualized

Key Benefits for Investors

HBND provides exposure to long-term U.S. treasuries with an active covered call strategy that generates additional monthly income from options premiums. Unlike the income from bonds, covered call income is more favourably taxed as capital gains, thus allowing HBND to provide higher tax-efficient monthly income.

• Higher Income: Higher yield compared to conventional fixed-income investments
• Tax Efficiency: Covered call premiums are generally taxed as capital gains
• Dynamic Strategy: Flexible coverage ratio to maximize income and maintain modest upside growth potential
• Experience: Managed by a team with 40+ years of combined experience
• Convenience: Available for purchase in CDN$ Hedged units (HBND) and US$ Unhedged units (HBND.U)

HBND — Higher Yield with Lower Credit Risk

As the chart below highlights, HBND provides a significantly higher yield compared to owning other fixed income ETFs. Traditionally, bond investors have had to take on extra credit risk to achieve a higher yield. What makes HBND particularly attractive is that it provides a significantly higher yield without having to take on additional credit risk given its exposure to trusted U.S. treasuries.

What are the Risks?

All U.S. treasury bonds are backed by the U.S. government and mature at full value, offering strong principal protection. However, bonds are sensitive to interest rate changes — when rates rise, the value of existing bonds typically falls, and vice versa, when rates decline, the value of existing bonds rises (as their yields become more attractive). Generally, the longer the duration of the bond, the more sensitive the value of the bond is to changes in interest rates. HBND invests in long-term U.S. treasuries with a portfolio duration of ~17 years. For investors seeking a shorter-duration alternative, our recently launched sister product, the Hamilton U.S. T-Bill YIELD MAXIMIZER™ ETF (HBIL/HBIL.U) offers exposure to short-term U.S. treasuries to reduce duration risk while still generating extra income from our active covered call strategy (portfolio duration of ~3.5 years).

Where does HBND fit in your Portfolio?

HBND, in our view, is a compelling investment solution for investors seeking higher tax-efficient monthly income from fixed-income investments without significantly increasing their exposure to credit risk. Below is a side-by-side comparison of the yield generated by a typical 60/40 portfolio of equities and bonds versus a 60/30/10 portfolio of equities, bonds, and HBND[6].

 

For additional information on our suite of YIELD MAXIMIZER™ ETFs, please CLICK HERE.

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A word on trading liquidity for ETFs …

Hamilton ETFs are highly liquid ETFs that can be purchased and sold easily. ETFs are as liquid as their underlying holdings and the underlying holdings trade millions of shares each day.

How does that work? When ETF investors are buying (or selling) in the market, they may transact with another ETF investor or a market maker for the ETF. At all times, even if daily volume appears low, there is a market maker – typically a large bank-owned investment dealer – willing to fill the other side of the ETF order (at net asset value plus a spread). The market maker then subscribes to create or redeem units in the ETF from the ETF manager (e.g., Hamilton ETFs), who purchases or sells the underlying holdings for the ETF.

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Commissions, management fees and expenses all may be associated with investments in exchange traded funds (ETFs) managed by Hamilton ETFs. Please read the prospectus before investing. Indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and does not take into account sales, redemptions, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Only the returns for periods of one year or greater are annualized returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements contained in this website may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Hamilton ETFs undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.

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[1]  Based on the universe of ETFs that trade on the Toronto Stock Exchange, as of September 14, 2023.
[2] An estimate of the annualized yield an investor would receive if the most recent distribution remained unchanged for the next 12 months, stated as a percentage of the price per unit on September 30, 2024. The yield calculation excludes any additional year end distributions and does not include reinvested distributions.
[3] As at September 30, 2024.
[4] Growth of $100,000 invested since inception is used to illustrate the effects of compound growth. It is not intended to reflect future returns on investments in the ETF.
[5] Source: Bloomberg, Hamilton ETFs, as of September 30, 2024. U.S. Government Bonds are represented by the iShares 20+ Year Treasury Bond ETF (TLT), while Investment Grade Corporate Bonds are represented by the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD). High Yield Corporate Bonds are represented by the iShares iBoxx $ High Yield Corporate Bond ETF (HYG). Past performance is not necessarily indicative of future results.
[6] All portfolio data as at September 30, 2024. For illustrative purposes only. The above illustrative example does not take into account any fees, expenses, or commissions associated with the purchase or sale of ETF units/shares. The example does not consider any tax liability that would result. It also assumes no change in the market value of the constituents. Equities is the iShares Core S&P/TSX Capped Composite Index ETF (XIC) yield, bonds is the Canada 10-year yield.