Few people have heard of the Harvest lineup of exchange-traded funds (ETFs). That’s hardly surprising. According to data from the Canadian ETF Association, the company’s share of the total market was only 0.1 per cent as of the end of January.
But that only goes to show that good things sometimes come in small packages.
Harvest offers several exchange-traded funds that have compiled impressive records so far, some of which are unique in the Canadian market. The caveat is that most of the funds are still relatively new, so it remains to be seen how they will stand the test of time.
These ETFs offer the potential for both capital gains and cash flow, as the managers use covered call writing in several of them to generate extra income.
Here are some of the more interesting ones:
Tech Achievers Growth and Income ETF:
This portfolio consists of 20 equally weighted U.S.-listed technology giants, including names like Alphabet (Google), Microsoft, Adobe, Nvidia, Intel, Cisco, Oracle and Apple.
The fund was launched in May 2015, so it doesn’t have much of a track record, but I like what I see so far. The total return for the year to Jan. 31 was 33 per cent, more than 10 points better than the average for the category.
Distributions are running at $ 0.0583 per month (about $ 0.70 per year) for a yield of 6.7 per cent based on a recent price of $ 10.51.
The management fee is on the high side for an ETF at 0.85 per cent. There are also U.S. dollar units available.
U.S. Equity Plus Income ETF:
Here the focus is on big companies (market caps of $ 10 billion plus) that are included in the S&P 500 and have led the way in share buybacks over the past year. The theory is that buybacks increase the value of the remaining stock by boosting earnings per share.
The portfolio includes companies like JPMorgan Chase, Bank of America, United Technologies, Union Pacific, Procter & Gamble and McDonald’s. There are 25 stocks in all, each with a weighting of about 4 per cent.
The two-year return to the end of January was 20.6 per cent, well ahead of the 14.4 per cent peer group average. The fund distributes $ 0.10 per unit quarterly, to yield 4.3 per cent at a recent price of $ 9.32.
One caution: this is a very small fund, with only $ 17.2 million in assets. As a result, it is very thinly traded, with some days of no trading activity at all.
So, if you want to invest, place a limit order (stipulate the price you want to pay) and be patient. It may take a few days to fill. There are U.S. dollar units available also.
Brand Leaders Plus Income ETF:
This is a portfolio of 20 equally-weighted U.S. corporate brand leaders. They include household names like PepsiCo, Nike, Starbucks, Apple and Visa.
The managers write covered call options on one-third of the portfolio to generate income to add to the regular quarterly corporate dividends. The current monthly payout is $ 0.054 per unit, or $ 0.648 per year.
At a recent price of $ 9.48, the yield is 6.8 per cent. The two-year return to Jan. 31 was 17.5 per cent, again way ahead of the category average.
This portfolio is a little larger at $ 80.3 million so trading is more active. The management fee is 0.75 per cent. There is a U.S. dollar version.
I hold a position in this ETF.
Blockchain Technologies ETF:
Want to invest in the technology that underlies all the new cryptocurrencies, like bitcoin? Then this is the fund for you.
Just be aware it has no track record (it was launched in early February) and is likely to be extremely volatile. This makes it a fund for speculators; if you can’t afford to lose money don’t go here.
The rewards could be terrific, but we are dealing with a new and unproven area of high tech. Think back to the frenzy of the late 1990s when the first Internet companies went public. Some went on to great success (e.g. Microsoft), but many others crashed and burned.
The portfolio has 22 positions, most of which you have probably never heard of, including Overstock.com, Riot Blockchain and Glance Technologies. However, there are some recognizable names in the mix, such as MasterCard, Visa, Oracle and, yes, Microsoft.
The managers recognize that this can be a volatile mix, so they reserve the right to hold a large amount of the assets in cash if market conditions warrant. I don’t like funds with no history but there is a huge amount of interest in blockchain stocks right now, which is why I mention it.
You’ll notice that I have not included any Canadian funds in this review. Harvest has a Canadian Income and Growth mutual fund (not an ETF), but its performance has been very weak. Their strength is clearly in the U.S. market.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters, and may have personal holdings in the investments he writes about.