Summary
Highlights
The video introduces Louis Reneras, Director of Marketing at Hamilton ETFs, alongside familiar face Patrick Somerville. They discuss the highly anticipated updates to HYLD and HDIV ETFs, focusing on management fee reductions and distribution increases, which are community favorites.
Hamilton ETFs announced a reduction in management fees for HYLD and HDIV to 0% due to the internalization of the funds. Previously, these ETFs contained third-party ETFs, incurring double management fees. Now, with primarily Hamilton's own yield maximizer ETFs, the effective management fee has been roughly halved to around 65 basis points (excluding leverage interest).
The internalization of ETFs allowed for a 7-8% increase in distributions for both HYLD and HDIV, equating to a penny more per share monthly. This was driven by the higher yields of Hamilton's in-house yield maximizer ETFs and the fee reduction. While individual yield maximizer ETFs may see modest distribution variability due to market conditions, HYLD and HDIV are expected to have more stable distributions due to diversification and a built-in surplus.
HYLD aims to closely mirror the S&P 500's sector mix. While not exact, it has achieved a much closer alignment than at its inception, particularly in technology, financials, and healthcare, with slightly higher allocations to energy and materials. This was made possible by the expansion of Hamilton's yield maximizer suite, offering broader sector coverage, especially in the US market.
HDIV's sector mix is designed to be a 'better version' of the TSX 60. Compared to the traditional TSX 60, HDIV includes a significant chunk of US technology and US healthcare, enhancing diversification beyond Canada's concentrated financials and energy sectors. This strategic inclusion aims to improve growth potential in a typically lower-growth Canadian economy.
A unique aspect of HDIV is the inclusion of non-covered call growth ETFs like HFIN (Canadian Financials) and HUTS (Utilities), making up approximately 18-20% of the fund. This adds a growth element to HDIV, leveraging stable Canadian sectors like banking and utilities. HYLD, on the other hand, consists entirely of yield maximizer ETFs due to the inherently higher growth and volatility of the US market, making additional leverage less necessary.
There is acknowledged overlap (around 30%) between HYLD and HDIV due to the inclusion of US technology and healthcare in HDIV. However, each ETF maintains distinct exposures (Canadian financials/utilities for HDIV, broader S&P 500 for HYLD), suggesting complementary roles. Performance data shows HDIV outperforming the TSX 60 and HYLD closely matching the S&P 500 (VSP) in total return since significant changes were implemented, highlighting the efficacy of the strategies, especially the modest leverage in rising markets.
Hamilton ETFs employ an active options strategy, with about 30% of the portfolio in at-the-money calls for most yield maximizer ETFs (HMAX being an outlier). The coverage ratio can fluctuate based on market volatility, allowing for adjustments to optimize between income generation and upside capture. Most newer yield maximizer ETFs are equally weighted to provide better diversification and are more suitable for active options strategies compared to market-cap-weighted approaches.
While there are no immediate plans for new high-income ETFs or further distribution increases, Hamilton ETFs maintains an active product development pipeline and continuously explores new solutions. The firm has experienced significant growth, surpassing $4.5 billion in AUM, and continues to expand its team and offerings, including their own options specialists.