- Income Focus: Hamilton’s covered call ETFs aim for high income through writing call options, appealing to income-focused investors, but limit growth potential.
- Performance Variability: QMAX shows potential for outperforming QQQ, while SMAX, HMAX, and UMAX underperform against SPY, ZEB, and XUT, particularly in bullish markets.
- Mixed Results for HDIV: HDIV outperforms the Canadian XIU index but lags behind the U.S. SPY index, indicating a trade-off between income and growth opportunities.
Like Global X ETFs, Hamilton ETFs have introduced a suite of covered call ETFs aimed at generating high income by writing call options on major indices and sectors. While this strategy offers substantial premiums and income, it comes with certain trade-offs, notably limiting upside potential in strong bull markets. This portfolio of covered call ETFs can be especially appealing for income-focused investors seeking regular cash flows over capital growth.
This analysis includes five Hamilton ETFs—QMAX, SMAX, HMAX, UMAX, and HDIV—compared with traditional, non-covered call ETFs. In this comparison, each Hamilton ETF is matched against a similar sector or index ETF, as follows:
- QMAX vs. QQQ (tracking the Nasdaq 100) to assess growth-focused technology exposure
- SMAX vs. SPY (tracking the S&P 500) for broad-based U.S. large-cap exposure
- HMAX vs. ZEB (tracking Canadian financials) for income from the Canadian banking sector
- UMAX vs. XUT (tracking Canadian utilities) for stability within the defensive utilities sector
- HDIV vs. XIU & SPY (multi-sector covered call vs Canadian & US market)
Performance Comparison: QMAX vs. QQQ and SMAX vs. SPY
In the comparison between QMAX and QQQ, QMAX’s total return—including its distributions—appears to closely track and slightly outperform QQQ over the one-year period. This suggests that, at least in recent years, QMAX has managed to deliver a similar growth trajectory while providing additional income through covered call premiums. While promising, it remains to be seen if QMAX can maintain this advantage consistently over a longer timeframe.
In contrast, SMAX shows a pattern of underperformance relative to its benchmark, SPY. The performance gap between SMAX and SPY remains relatively narrow, which might suggest that SMAX could continue to offer comparable market exposure while generating income.
Performance Comparison: HMAX vs. ZEB and UMAX vs. XUT
When examining HMAX and UMAX, which are focused on financials and utilities, respectively, we observe a notable underperformance compared to their index fund counterparts, ZEB and XUT. Over the one-year period, HMAX and UMAX consistently lag behind, particularly during bullish market cycles where the covered call strategy tends to limit upside potential.
The data suggests that the covered call strategy in these ETFs may contribute to this performance gap, as HMAX and UMAX sacrifice potential capital gains for regular income through premiums. This approach, while attractive in generating income, appears less advantageous during market upswings where index funds capture greater gains. As such, investors should consider the trade-off between income generation and growth potential when evaluating these funds.
HDIV Performance Comparison: XIU vs. SPY
In assessing HDIV against both Canadian and U.S. stock market indexes, we find a nuanced performance pattern. As advertised, HDIV outperforms the XIU, representing the S&P/TSX 60 index, showcasing its ability to capture additional income within the Canadian market context. However, when compared to the U.S. benchmark SPY (S&P 500), HDIV underperforms.
This performance disparity is likely due to HDIV’s structure—a bundle of covered call ETFs, such as QMAX and SMAX, along with other products. While HDIV includes elements tied to U.S. and technology indexes, which have outperformed the S&P/TSX 60, the covered call strategy impacts growth potential in bullish cycles, especially when contrasted with SPY. Nevertheless, integrating HDIV into a portfolio for enhanced dividend income appears to be a reasonable approach, balancing income generation with moderate growth exposure.
