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ZPAY for secure income, minimum risk

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  • Apr 6th, 2021 11:23 pm
[OP]
Deal Expert
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Dec 12, 2009
20944 posts
9217 upvotes
Toronto

ZPAY for secure income, minimum risk

ZPAY is a fairly new ETF offering from BMO. It is a little more complex than the numerous covered call ETFs which are also intended for investors looking for income. I like ZPAY a lot more than the covered call ETFs in that there is very little in the way of return of capital which makes it suitable for both registered and non registered accounts. Since the fund only writes calls for half of the holdings, it leaves room for some upside potential. The one thing that I am struggling with is trying to figure out the risk of writing puts in a down market. Can this fund end up with holding a lot more equities than by design which would significantly elevate its risk profile? BMO rates this fund low-medium risk which is actually less risky than the rating for the covered call ETFs. This is the white paper explaining the mechanics of how the fund operates. I would interested in some feedback on the suitability of this fund in meeting the secure income, minimum risk objective.

https://www.bmogamhub.com/system/files/ ... epaper.pdf
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3 replies
[OP]
Deal Expert
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Dec 12, 2009
20944 posts
9217 upvotes
Toronto
I have to bump this thread. Over 200 views and no feedback so far.
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May 31, 2018
695 posts
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Saskatchewan
We’ve had it for a little more than a year. I class it as being effectively the same as the ZW* series as far as risk goes, although every one of the ZW* except ZWU has outperformed it handily over the last 11 months. As you say it has a little different structure so it might hold better value in down/flat markets, but it’s been quite laggy so far in the good times. We’ll be keeping it as part of the TFSA income stream, but probably won’t ever add to it unless it starts catching up to everything else in that account.
[OP]
Deal Expert
User avatar
Dec 12, 2009
20944 posts
9217 upvotes
Toronto
FarmerHarv wrote: We’ve had it for a little more than a year. I class it as being effectively the same as the ZW* series as far as risk goes, although every one of the ZW* except ZWU has outperformed it handily over the last 11 months. As you say it has a little different structure so it might hold better value in down/flat markets, but it’s been quite laggy so far in the good times. We’ll be keeping it as part of the TFSA income stream, but probably won’t ever add to it unless it starts catching up to everything else in that account.
Thanks for the feedback. This fund is so new, I am having difficulties assessing real world performance. According to the white paper, one would think that it should perform better given the fact that the design is to write covered calls for only ~50% of the holdings so as to keep some equities in the portfolio for growth. I am more concerned about the puts and how it contributes to overall fund performance. First impression would be that selling both calls and puts would give it a cash flow advantage over the ZW* series which only write calls. The distribution for ZPAY is lower than the ZW* covered calls series. The thesis in the white paper just does not add up.
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Public Mobile 2016 fall promo, $23/1GB, $38/5GB
Fido $0.00/4GB+tablet
Tangerine Bank, EQ Bank, Simplii

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