Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

In uncertain times, like now, investors turn to what are known as “safe haven” assets. These include cash, government bonds and gold.

The problem for income-oriented investors is that none of these offers any appreciable cash flow. Interest rates on deposit accounts are negligible, except at a few small financial institutions. Ten-year federal government bonds are yielding around 0.5 per cent. Gold, if held in the form of bars or coins, pays nothing.

Some gold stocks do pay dividends, but they won’t excite you.

Story continues below advertisement

Franco-Nevada Corp. (FNV-T), which I own, pays a quarterly dividend of 25 US cents a share (US$1 a year) to yield 0.77 per cent. Agnico Eagle Mines Ltd. (AEM-T) has a quarterly payout of 20 US cents a share to yield 1.37 per cent. Neither of those are going to pay for the groceries.

But now there is a way to own some gold and get income as well. Two Canadian exchange-traded funds are using covered call writing on gold stocks to generate cash flow, which is somewhat akin to having your cake and eating it too.

Here are the details.

CI First Asset Gold+ Giants Covered Call ETF (CGXF-T)

Current price: $13.14

Annual payout: 96.7 cents (trailing 12 months)

Yield: 7.36 per cent

This ETF invests in an equal-weight portfolio of the 15 largest gold and precious metals companies by market capitalization listed on North American stock exchanges that have liquid options markets. Holdings include B2Gold Corp., Yamana Gold Inc., Kinross Gold Corp., Gold Fields Ltd., Pan American Silver Corp. and Barrick Gold Corp.

Story continues below advertisement

Strategy: The portfolio is always fully invested. The managers write covered call options on 25 per cent of the positions to generate cash flow.

Performance: This used to be the Can-Materials Covered Call ETF. The mandate was changed to gold and precious metals last July, so earlier returns are meaningless. The year-to-date total return is 9.4 per cent.

Key metrics: The fund has about $196-million in assets under management. The management fee is 0.65 per cent, while the management expense ratio (MER) is 0.74 per cent.

Risks: The market price depends to a large extent on the price of gold. If it rises, so will the unit price. If gold declines, so will this fund. The covered call policy places a lid on the upside potential of 25 per cent of the portfolio.

Distribution policy: Payments are made quarterly and may vary considerably. The March distribution was a bit more than 32 cents a unit.

Tax implications: In 2019, almost all of the distribution was classified as return of capital. That means the payments were not taxable in the year received but the cost base needs to be adjusted accordingly. This tax treatment means the ETF is suitable for non-registered accounts.

Story continues below advertisement

Who it’s for: This fund is suitable for investors who can tolerate higher risk and want some exposure to gold along with good cash flow.

Horizons Enhanced Income Gold Producers ETF (HEP-T)

Current price: $32

Annual payout: $1.715 (trailing 12 months)

Yield: 5.36 per cent

This ETF also invests in a portfolio of precious metals stocks, but it goes beyond North America to include companies in South Africa and Burkina Faso. Not surprisingly, many of the holdings are the same as in the First Asset fund.

Strategy: Covered call options are used to generate additional cash flow. However, in this case the managers generally write options on 100 per cent of the positions, although this can vary based on market volatility.

Story continues below advertisement

Performance: Over the five years to May 31, the fund generated an average annual compound rate of return of 14.65 per cent. Year-to-date total return is 11.4 per cent.

Key metrics: The fund was launched in April, 2011, and has net assets of about $109-million. The management fee is 0.65 per cent and the MER is 0.84 per cent.

Risks: Here again, the value of the fund will rise or fall with the price of gold.

Distribution policy: The ETF makes monthly payments that have lately been running in the range of 18 to 20 cents. They can vary significantly.

Tax implications: The entire 2019 payout was treated as return of capital.

Who it’s for: As with the First Asset entry, this ETF is suited to more aggressive investors.

Story continues below advertisement

Summing up: These ETFs have a similar mandate. The Horizons entry has a longer track record and has performed very well over the past five years. It is more aggressive in its call writing policy.

The First Asset fund has a superior trailing 12-month yield, is quite a bit larger, and is slightly less expensive.

The funds are similar in terms of recent performance.

If you want to hold gold without sacrificing cash flow, either fund would be a good choice. But remember the risk factor if the gold price falls. These ETFs are for aggressive investors.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies