Discover how covered calls can add income and lower risk
Covered Call ETFs in Action
Add Income
Lower Volatility
Tax Efficient
Covered Call premiums add income to investment strategies
By selling options on part of the portfolio, Covered Call ETFs generate premium income now by giving up some potential future gains.
Covered Calls in All Markets
Tackle risk while enhancing income with a covered call strategy.
High Return, Low Volatility Market
Trades upside for cash flow
High Return, Moderate Volatility Market
Lower drawdowns during volatile markets
Low Return, High Volatility Market
Higher total return during volatile markets
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S&P 500 Index |
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Covered Call Index |
Figures of relative performance are for illustrative purposes only.
Choosing the Right Covered Call Strategy
Not all covered call strategies are the same. Different factors can have a significant impact on how your investments perform.
Overwrite Level
Overwriting is the percentage of the portfolio that has call options written on it. While writing on a higher percentage of the portfolio generates more premium income, it also limits more of the upside.
Moneyness
At-the-money (ATM) calls generate higher premiums but limit more of the upside. The further out-of-the-money (OTM) the call options are written, meaning the option strike price is set above the current trading price, then the greater upside potential for the seller, but the lower the premium income.
Active vs. Passive
A passive strategy that only writes at-the-money calls on a fixed percentage of the portfolio may sacrifice more upside potential when markets move higher, leading to lower total returns.
It Pays To Be Active
Brompton takes an active approach to covered call writing with the aim to maximize total return. We determine what percentage of the portfolio and which equity securities to sell call options on, based on market conditions and our investment outlook.
Active Covered Call Strategy
Passive Covered Call Strategy
Flexible
- Write either at-the-money or out-of-the-money calls
- Adjust strike prices and expiry dates to manage premium levels and portfolio risk
- Reduce call writing over short term to increase market participation
Focused
- Write on individual stocks in the portfolio
- Able to exit portfolio positions while generating income
- May target more volatile stocks for higher premiums
Complex
- Require attention and expertise to manage properly
Simple
- Rules-based methodology makes strategy easier to manage
Inflexible
- Cannot shift between out-of-the money and at-the-money strategies
- Does not consider market environment in managing premium levels and portfolio risk
- Limits upside during strong markets, including bear market rallies
- Options may be written at unattractive prices
Unexpected Costs
- A passive at-the-money strategy can result in calls being exercised more often, raising trading costs and realizing taxes
Actively Managed Covered Call Funds
Brompton Global Dividend Growth ETF
Brompton North American Financials Dividend ETF
Brompton North American Low Volatility Dividend ETF
Brompton Global Infrastructure ETF
Brompton European Dividend Growth ETF
Brompton Global Healthcare Income & Growth ETF
Brompton Tech Leaders Income ETF
Dividend Growth Split Corp.
Global Dividend Growth Split Corp.
Life & Banc Split Corp.
Brompton Lifeco Split Corp.
Brompton Energy Split Corp.
Sustainable Power & Infrastructure Split Corp.
Brompton Split Banc Corp.
More Information on Covered Calls
Brompton Senior Portfolio Manager Explains Covered Calls
Disclosures
This document is for information purposes only and does not constitute an offer to sell or a solicitation to buy the securities referred to herein. The opinions contained in this report are solely those of BFL and are subject to change without notice. BFL makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, BFL assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. BFL is under no obligation to update the information contained herein. The information should not be regarded as a substitute for the exercise of your own judgment. Please read the prospectus before investing.
Commissions, trailing commissions, management fees and expenses all may be associated with exchange-traded fund investments. Please read the prospectus before investing. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
Information contained in this document was published at a specific point in time. Upon publication, it is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times.
Certain statements contained in this document constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to matters disclosed in this document and to other matters identified in public filings relating to the ETFs, to the future outlook of the ETFs and anticipated events or results and may include statements regarding the future financial performance of the ETFs. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Investors should not place undue reliance on forward-looking statements. These forward- looking statements are made as of the date hereof and we assume no obligation to update or revise them to reflect new events or circumstances.
