One of my brokers, Jeff Finkelstein of RBC Dominion Securities, came up
with an idea that I like very much.
He is buying units in
Brand Leaders Plus Income ETF (TSX: HBF). This is a small ($37.7 million) fund from a company called Harvest
Portfolio Group. It’s an equal-weighted, currency-hedged portfolio of 20
blue chip U.S. multi-national corporations with a minimum market cap of
US$10 billion (the actual valuations are much higher). The managers use
covered call options on 33% of the securities to generate additional cash
flow beyond the dividends received.
Here are the details:
Exchange-traded fund (ETF)
: Higher risk
: Gordon Pape
The fund has been around since July 2014 but got off to a slow start. The
price dropped to below $8 in early 2016. It has gradually trended higher
since then, closing on Sept. 8 at $8.73.
The portfolio roster reads like a Who’s Who of American blue-chip stocks.
You’ll find names like Disney, Intel, Citigroup, Johnson & Johnson,
McDonalds, Visa, PepsiCo, 3M, Nike, Apple, IBM, JPMorgan Chase, Microsoft,
Starbucks, etc. There is only one European company, Royal Dutch Shell.
These are not interest-sensitive securities. Rather, they are economically
sensitive, meaning that when GDP is growing, they tend to do well. Much of
their earnings come from overseas operations, providing exposure to
economies that in many cases are growing at a faster pace than the U.S.
Because of the way it is structured, this ETF is unlikely to produce
significant capital gains. But the cash flow is very attractive. The
managers target a monthly distribution of $0.0542 per unit ($0.65 per year)
and so far, they have delivered. That works out to a yield of 7.4% based on
the Sept. 8 closing price.
There is also a tax break here if the units are held in a non-registered
account. In 2016, the entire distribution was treated as return of capital,
meaning no tax was payable for the year. The cost base of the units is
adjusted accordingly, resulting in a larger capital gain when and if they
This fund is attractive for readers who want more exposure to U.S.
blue-chip stocks and are seeking above-average cash flow. There is also a
U.S. dollar version available, trading as HBF.U.
One word of caution. Because of its small size, this is a thinly traded
security. Daily volume rarely exceeds 10,000 units. So place a limit order
and be prepared to wait for a fill.
Discuss this recommendation with your financial advisor before making a
Gordon Pape is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
The Internet Wealth Builder and The Income Investornewsletters, which are available through the Building Wealth website.
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Notes and Disclaimer
© 2017 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.
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