September was a quiet month for ETF launches following a busy summer of launches for Canada’s ETF industry. A total of seven new ETFs launched last month, including a novel strategy for the Canadian market.
The month of September historically brings with it an end-of-summer slump, and this year was no exception for markets. The announcement by the U.S. Federal Reserve of another interest rate increase likely before year’s end caused ripples globally.
Into a challenging and slower September market environment, a total of seven ETFs launched in Canada. Noteworthy among them was another first-of-its-kind for the market offering an options-based strategy within bonds.
Canada’s First Covered Call Bond ETF
Hamilton ETFs launched the first Canadian covered-call bond ETF mid-month, the Hamilton U.S. Bond Yield Maximizer ETF (HBND). It’s actively managed and employs a fund of funds strategy. HBND currently invests in five core U.S. bond ETFs spanning ultra-short duration to long-term duration.
As of the end of September, the fund’s core holding by weight was the iShares 10+ Year Treasury Bond ETF (TLT) at 49.6% weight. The Vanguard Long-Term Treasury ETF (VGLT) holds the secondary spot at 29.9% weight, followed by several shorter duration Treasury ETFs.
The fund is an income-focused one and utilizes an options overlay as it seeks to increase income opportunities in bonds. Fund managers write at-the-money covered calls on approximately 50% of the underlying assets. The remainder of the portfolio is left free to optimize upside capture potential. HBND has a management fee of 0.45%.
Expanding Canada’s Thematic ETF Offerings
Semiconductor, Energy Transition, and Aerospace & Defense
RBC iShares, one of Canada’s biggest ETF providers, launched a total of six new ETFs covering five thematic strategies at the end of the month.
- The iShares Semiconductor Index ETF (XCHP) is a timely offering given the boom in AI-centric stocks this year. Semiconductors are an integral component of AI technology, with robust global demand. XCHP offers exposure to the ICE Semiconductor Index. The Index seeks to track U.S. companies involved in the semiconductor industry. This includes companies that design, manufacture, and/or distribute semiconductors. XCHP has management fees of 0.35%.
- The iShares S&P/TSX Energy Transition Materials Index ETF (XETM) offers exposure to companies mining and manufacturing metals necessary for the energy transition. The fund seeks to track the S&P/TSX Energy Transition Materials Index.
The index comprises North American companies that mine, engage in exploration, and manufacture products using key metals. These include cobalt, copper, aluminum and alumina, lithium, nickel, zinc, uranium, bauxite, manganese, palladium, platinum, silver, molybdenum, and rare earth metals. XCHP has a management fee of 0.55%. - The iShares U.S. Aerospace & Defense Index ETF (XAD) offers exposure to U.S. companies that benefit from significant spending into the aerospace and defense sector. The fund seeks to track the Dow Jones U.S. Select Aerospace & Defense Index. The index comprises U.S. companies manufacturing military and commercial aircraft and defense equipment. XAD has a management fee of 0.39%.
Financials and Nasdaq-100 Expanded Currency Offerings
- The iShares S&P U.S. Financials Index ETF (XUSF) offers focused exposure to the U.S. financial sector. The fund seeks to track the S&P Financial Select Sector Index. The index comprises U.S. large-cap financial companies, including banks, credit companies, and insurers. XUSF has a management fee of 0.25%.
- The iShares NASDAQ 100 Index ETFs (XQQU and XQQU.U) are an unhedged and strictly U.S. dollar variation respectively of the iShares NASDAQ 100 Index (CAD-Hedged XQQ). The strategy seeks to replicate the performance, net of expenses, of the Nasdaq-100. The Nasdaq-100 tracks large-cap U.S. companies largely from the technology sector. As such, it offers a strong growth tilt. XQQU and XQQU.U both have management fees of 0.35%.
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