Hamilton HDIV ETF
Hello everyone, this is Old Fish.
Living in Canada lately has been increasingly challenging. Wages simply aren't keeping pace with inflation. Between mortgages, rent, and the rising cost of daily essentials, the financial pressure is mounting.
In this environment, many investors are shifting their focus: instead of solely chasing long-term capital growth, they are looking for high dividends to boost monthly cash flow and ease the cost-of-living squeeze. Is there a fund or an investment strategy that can help solve this cash flow problem?
Today, I want to take a deep dive into a prominent Canadian high-yield ETF — Hamilton’s HDIV.
What is HDIV?
1. Strategy & Structure
- Nature: HDIV is a Covered Call ETF issued by Hamilton ETFs.
- Current Yield: It currently offers a dividend yield of approximately 11%.
- Mechanism: Similar to popular U.S. funds like JEPI or JEPQ, it generates high income by collecting premiums through a covered call strategy.
- Focus: While primarily targeting the Canadian market, its portfolio also includes strategic U.S. components.
2. Stability & Performance
The biggest fear for income investors is "yield traps"—earning dividends while losing principal. Let’s look at HDIV’s track record:
- Price Stability: Since its inception over three years ago, HDIV’s share price has remained remarkably stable. It recently hit an all-time high, supported by the strong performance of the Canadian market this year.
- Dividend Consistency: Notably, HDIV has maintained its distribution without cuts, even during the market volatility of 2022 and 2023. To date, it has managed to deliver both high monthly income and modest capital appreciation.
## 【Performance: Can HDIV Beat the Market?】
When comparing the Total Return (with dividends reinvested) of HDIV against major benchmarks, the results are quite impressive:
| Benchmark | Type | Comparison Result |
|---|---|---|
| XIU | TSX 60 (Canada Large-Cap) | HDIV Outperforms. It has beaten the Canadian benchmark since inception. |
| XEQT | Global Equity Core | HDIV Wins. It has outperformed this popular global diversifier. |
| VFV | S&P 500 (CAD Version) | HDIV Wins (Total Return). Recently pulled ahead due to currency and sector strength. |
Note: While historical performance is stellar, a covered call ETF consistently beating growth-focused ETFs is rare. Whether it can maintain this lead over the long term remains to be seen.
The Engine: Sector Allocation & Structure】
1. Sector Weights
- Financials (36%): The core of the Canadian market. Consistent with the structure of the TSX 60.
- Technology (16.5%): Provides growth potential (includes U.S. tech giants).
- Gold (14%): Acts as a defensive hedge. A major tailwind during recent gold price highs.
- Utilities (13.8%) & Energy (13.2%): These are the "cash flow engines" providing high organic dividends.
- Others: Health Care (2.2%), REITs (2.6%), and Fixed Income (1.7%).
2. Design Features
- 1.25x Modest Leverage: Used to boost both the yield and the growth potential, helping it keep pace with the broader market.
- Fund of Funds (FOF): HDIV holds other Hamilton sector-specific ETFs.
- Management Fee: The MER (Management Expense Ratio) is currently ~2.67% (includes underlying fees and cost of leverage). High, but reasonable for this specific category.
##【The Options Strategy】
HDIV’s underlying ETFs typically employ a 30% coverage ratio with At-The-Money (ATM) calls:
- What is ATM? The strike price is equal to or very close to the current market price.
- The Advantage: By only "writing" calls on 30% of the portfolio, the fund collects high premiums while the remaining 70% of the portfolio is fully exposed to market gains.
- The Result: This is the primary reason HDIV can offer an 11% yield while still allowing the share price to rise during a bull market.
##【Final Thoughts】
HDIV offers a compelling balance for Canadian investors seeking high monthly income without completely sacrificing capital growth. By using modest leverage and a selective options strategy, it has managed to turn the "boring" Canadian market into a high-performance income machine.
Pros: Stable high yield, defensive sector mix (Gold/Utilities), and proven total return. Cons: High MER and increased volatility due to the 1.25x leverage.
Before investing, it is crucial to understand exactly what is under the hood. Only then can you hold your positions with confidence through market cycles.
This is Old Fish. If you found this analysis helpful, it will be my pleasure. Thanks for reading!