If you follow personal-finance accounts, you have certainly seen them: lists of Canadian ETFs advertising yields of 7%, 10%, even 13% a year, paid every month. The numbers are real. But to understand whether these funds belong in your portfolio, you must first understand where that money comes from, because a 13% yield never falls from the sky.
This article explains, in plain language, the mechanics behind these funds, then reviews the five most frequently cited ETFs.
First, understand covered-call selling
All these funds rest on the same strategy: selling covered call options. Here is the idea, without jargon.
Imagine you own a house worth $500,000. A neighbor offers you $5,000 today, in cash, in exchange for a promise: if he wishes, he can buy your house from you at $520,000 within three months. You accept. Two scenarios are possible.
If the house stays around $500,000, the neighbor does not exercise his right — why would he pay $520,000 for a house worth $500,000? You keep the house and the $5,000. You have just generated income without selling anything.
But if the house jumps to $600,000, the neighbor exercises his right: you must sell it to him at $520,000. You keep the $5,000 and a $20,000 profit... but you gave up the additional $80,000 of upside.
This is exactly what these ETFs do, with stocks rather than houses: they hold shares of large companies, sell promises of this kind every month, collect the premiums, and redistribute them to you. The monthly income is real; what you sacrifice is part of the market gains. When the market stagnates or drifts down gently, the strategy shines. When it soars, the fund stays partly on the ground.
The five funds of the moment, one by one
UMAX — Hamilton Utilities YIELD MAXIMIZER (about 13% annualized yield). Despite its name, UMAX does not hold only utilities in the strict sense: its portfolio of about fifteen Canadian holdings mixes pipelines (Enbridge, TC Energy, Pembina), railways (CN, CP) and electricity producers. These are stable, unspectacular, high-dividend companies, the ideal raw material for an options strategy. Its advertised yield is the highest of the group, which also means the most aggressive options coverage: it is the fund that sacrifices the most potential growth to maximize the monthly payment.
RMAX — Hamilton REITs YIELD MAXIMIZER (about 10.6%). This one holds Canadian and U.S. real estate investment trusts (REITs): shopping malls, industrial warehouses, data centers, residential buildings, telecom towers. Listed real estate already pays generous distributions; the options layer amplifies them. Note: REITs are sensitive to interest rates — when rates rise, the sector suffers, covered calls or not.
EMAX — Hamilton Energy YIELD MAXIMIZER (about 10.5%). The same principle applied to large North American energy companies, mostly American. Energy is a cyclical and volatile sector — and paradoxically, that is good for this strategy: the more volatile a sector, the higher the option premiums. The flip side: when oil plunges, the fund value plunges with it, and the collected premiums cushion only a fraction of the fall.
QMAX — Hamilton Technology YIELD MAXIMIZER (about 10.1%). Here, the strategy is applied to the U.S. technology giants. It is the most paradoxical case of the group: you take the sector whose whole historical appeal is explosive growth... and you sell precisely that growth for monthly income. Holding QMAX rather than a classic technology ETF means accepting to miss part of the sector's great years in exchange for regular payments. For a young investor, it is generally the worst trade of the five.
ZPAY — BMO Premium Income Fund (about 7.3%). The only one of the group not from the Hamilton family, and the most conservative. ZPAY uses a combination of options (selling call options, but also put options) on large quality U.S. companies, with a portion in cash. Its yield is more modest, but its value fluctuates less. It is the prudent compromise of the list.
What the advertised yield does not say
Three truths apply to all these funds, and they must precede any decision.
The advertised yield is not the total return. A fund can pay 13% while its unit value crumbles by 5% — your real return is the sum of the two. Always compare the total return (value + distributions) to that of a simple index fund over the same period. Over long bull-market periods, the index almost always wins.
Part of the distributions may be return of capital. In other words, a fraction of the monthly amount you receive is sometimes simply your own money being handed back. It is not dishonest — it is even tax-advantageous in a non-registered account — but you must know it: receiving your own capital is not a return.
Fees are higher than an index fund. Actively managing options is expensive: expect expense ratios several times higher than those of a basic index ETF. Over twenty years, this gap compounds against you. To fully grasp this effect, see our article on investment fees.
So, who are these funds for?
They have a legitimate clientele: investors in the decumulation phase — retirees or semi-retirees who live off their portfolio and prefer a predictable monthly income to maximal growth. For them, trading future upside for present income is a rational compromise.
If you are in the accumulation phase — you work, you invest every month, your horizon exceeds ten years — these funds answer a need you do not have. Every dollar of distribution is a dollar pulled out of the compounding machine, and every option sold is a piece of your future growth handed to someone else. Your tool is the growth index fund, boring and silent, which pays you nothing and enriches you anyway. That is the heart of the debate we cover in dividends or pure growth, and it connects to the question of how many ETFs to hold.
The question to ask yourself in front of each video of this kind is therefore not "which fund pays the most?", but "am I building my wealth, or living off it?". The answer chooses the fund for you.
This article is provided for informational purposes only and does not constitute personalized financial advice. The yields mentioned are those advertised by the issuers at the time of writing and fluctuate constantly. Consult a licensed professional before making investment decisions.