Toronto-based AGF Investments Inc. has a new fund that uses covered calls to boost income from U.S. equities, the latest product to tap into investor interest in yield.
The AGF Enhanced U.S. Equity Income Fund invests actively in dividend-paying U.S. equities while using options to smooth volatility and provide income. The fund focuses on established, consistent dividend payers with little exposure to companies with high capital expenditures and internal reinvestment.
The manager can write covered call options on up to half the portfolio, and may also write covered put options on a portion of holdings.
The firm said the fund is the first in a series of strategies to be offered in both mutual fund and ETF packaging as it moves to a “vehicle agnostic” approach. AGF plans to list ETF series of its total return bond, global real assets and U.S. small mid-cap funds this fall.
The management fee for the ETF (Cboe: AENU) and series F of the new fund is 0.75% (plus a 0.10% administration fee), while the mutual fund series fee is 1.75%.
Covered-call products have been popular in the past year as investors seek income from equities with less volatility.
Horizons ETFs Management (Canada) Inc. and Evolve Funds Group Inc. released new ETFs in July that write covered calls on holdings of U.S. large caps, while Hamilton Capital Partners Inc. launched covered-call products focused on Canadian banks and utilities this year.
More than $2.1 billion flowed into covered-call ETFs in the first half of this year, according to TD Securities. The Hamilton Canadian Financials Yield Maximizer ETF has almost $500 million in assets since launching in January, according to National Bank Financial.
New entrant
Kelowna, B.C.-based asset manager Forstrong Global Asset Management Inc. is the latest player in Canada’s ETF market with the launch of four funds.
The global macro manager’s first ETFs use the same strategy of investing in other ETFs as Forstrong uses with its institutional and high-net-worth clients.
The Forstrong Global Ex-North America Equity ETF (TSX: FINE) invests in equities outside North America using a top-down strategy to track changes in country fundamentals, politics, regulations and other factors, the firm said. It invests in ETFs listed on North American exchanges and may hold up to 30% in cash.
Forstrong said the fund is designed to complement traditional bottom-up North America-focused portfolios. The management fee is 0.70%.
The Forstrong Emerging Markets Equity ETF (TSX: FEME) focuses on politically stable countries with attractive demographics, policy and earnings trends. It can also hold up to 30% in cash and its management fee is 0.70%.
The Forstrong Global Income ETF (TSX: FINC) invests in a mix of equity, bond and cash ETFs with an emphasis on low volatility. Up to 40% of the portfolio can be in equities, while fixed income can make up between 40% and 100%. Up to 25% can be allocated to cash. The management fee is 0.55%.
The Forstrong Global Growth ETF (TSX: FGRW) aims to provide long-term capital growth with some income by investing in North American-listed ETFs. Equities make up 45% to 100% of the fund, while 30% can be allocated to fixed income and 25% to cash. The management fee is 0.55%.
Forstrong bought out iA Financial Group’s majority interest in the firm in 2021 and acquired Calgary-based Shaunessy Investment Counsel Inc. last year.
Fund changes
Toronto-based Ninepoint Parners LP is the latest manager to pivot into money-market funds amid regulatory uncertainty facing high-interest savings account (HISA) products. Unitholders approved a change this month permitting the Ninepoint High Interest Savings Fund to also invest in money market securities.
The Office of the Superintendent of Financial Institutions is reviewing liquidity adequacy requirements for HISA ETFs, which may affect the rate the funds can offer. Several firms have responded to the uncertainty by launching money market funds — and some are even waiving management fees to attract investors.
Ninepoint also said it’s waiving its management fee on the ETF and series F until either June 30, 2024, or when the fund’s net asset value exceeds $1 billion. As of May 31, the fund had $424.5 million in assets.
Earlier this year, Ninepoint changed the investment objective of its Bitcoin fund to focus more broadly on Web3 innovation.