Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
CIBC strategist Jin Yan published a useful and detailed report on ETFs with the highest yields, with specific focus on covered call strategies which he writes “have delivered for Canadians,”
“Covered call and put writing strategies are some of the highest-yielding products available. These include a number of broad market and sector specific ETFs, which harvest volatility for option premiums. The premiums supplement the underlying portfolio’s dividend yield and generate additional tax-efficient income. The trade-off is that some of the upside potential in the underlying portfolio is capped … Most of the top-yielding Canadian ETFs with AUM of over $50MM use some form of call or put writing … In these products, the ETF manager will write call options (sell calls) to other market participants, receiving a premium in return. For the income received to offset the potential loss of capital appreciation, the underlying stock must not hit the strike price, often about 0%- 10% higher with a 1-2 month duration. Alternatively, the portfolio managers may elect to write cash-covered put options or use a combination of put and call writing”
The top ten highest yielding ETFs are CI Gold+ Giants Covered Call, CI Tech Giants Covered Call ETFCAD Hedged, CI Energy Giants Cov Call ETF CAD Hedged, CI US and Canada Lifeco Income ETF, CI Health Care Giant Covered Call ETF Hedged , Harvest Healthcare Leaders Income ETF, BMO Covered Call Utilities ETF, BMO Covered Call US Banks ETF BMO US Put Write ETF, and the Harvest Equal Weight Global Utilities Income ETF.
(‘LTM’ in the table below is an acronym for ‘last 12 months’)
“@SBarlow_ROB CIBC: ‘Canadian-listed ETFs – Highest-yielding ETFs (Sorted By LTM Yield), July 2021″” – (full table) Twitter
***
Citi analyst Edward Morse published Another false alarm and opportunity to buy the oil dip. When will this pattern end? on Wednesday morning,
“Crude oil’s dip and rebound reflects a tug of war that has dominated 3Q to date between increasingly firm market fundamentals and bearish signs on the horizon. OPEC+ continues credibly to support the market with monthly reviews of its longer term plan to bring all oil taken off the market last year back into the market by end-2022. The result has been a global inventory draw that was taking a good 2.5-m b/d off the market as 3Q began, but that deficit seems to have dissipated in July while it is rebounding strongly in August. Fickle financial flows are stoking significant concerns raised by the spread of the COVID-19 Delta variant, a potentially stagnating Chinese economy, signs of persistent and growing inflation around the world , and signals from some central banks (and particularly the US Fed) of accelerated tapering and consideration of higher interest rates on the horizon … We maintain our base case for Brent in 2H’21 to be in a range of $75-80 a barrel, but it is more likely in our view that they will be higher than lower. We believe that market tightening is far from over and that prices over the coming months will rebound to Brent pricing between $75-80 with a strong potential to spike above that level given OPEC+ and its conservative approach to market management”
“@SBarlow_ROB Citi from “Another false alarm and opportunity to buy the oil dip”' – (research excerpt) Twitter
***
Also from CIBC, analyst Dennis Fong outlines a roadmap for government support of the energy transition to renewables,
“The release of the IPCC climate report this week gave governments a stark reminder of our global climate challenge. In Canada, the oil and gas sector can play a major part in reducing national emissions but has received the least amount of financial support from the Federal Government. Since 2015, the Liberal Government has announced almost $120 billion of investments to help the transition to a more carbon-efficient economy; however, only 5% of funding is earmarked to oil and gas even though it is the largest emitting sector (26% of emissions). The bulk of the funding (over 60%) is currently allocated to transportation, electricity, and waste/other (41% of emissions). We view the government’s role as being two-fold. First, it should provide a stable, consistent environmental policy, allowing companies to allocate capital towards an energy transition. Second, the government needs to work with industry to incentivize and/or fund the accelerated development of projects such as carbon capture or a transition to lower-carbon energy alternatives… Price on carbon could be used to fund the transition. The Pathways Alliance estimates its carbon-capture network could require an investment of ~$75 billion over the next 30 years. We estimate the government could receive up to ~$21 billion from the oil sands companies in carbon compliance over the next 30 years, based on the escalating carbon price (increases to $170 per tonne in 2030)”
“@SBarlow_ROB CIBC’s ‘Government role in the energy transition” – (research excerpt) Twitter
***
Column: “These Canadian stocks benefit from U.S. electric vehicle pledge” – Barlow, Inside the Market
Diversion: “U.S. Kids Are Now Getting Nearly 70% of Their Calories From ‘Ultra-Processed’ Foods” – Gizmodo
Tweet of the Day:
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.
Scott Barlow