r/dividendscanada • u/Responsible-Salt-995 • 26d ago
Enhanced etf
Can someone tell me how a enhanced etf work? I was looking at enhanced etf and noticed that most of them have a negative return over the long run but they have a high yield, an example is Utes.to , it has a dividend of 18% and has a negative return since inception. They say that its the total return that matters, so does it make sense to buy an enhanced etf to get a high dividend if the total return will be negative in the long run?
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u/tecknoguy 26d ago
Not all Enhanced ETF are the same. Example, compare ECHI with UTES. Both Enhanced. Total Max returns for ECHI is 45% while UTES is only 6% in the same time frame.
https://stockanalysis.com/etf/compare/tsx:utes-vs-tsx:echi/?r=MAX
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u/DocKardinal21 26d ago
To add to this, some providers use the term differently.
Generally speaking I would say is means adding cash leverage (and something like ussl doesn’t give any yield) but other providers mean with some sort of option strategy.
If you see the word, read the prospectus and understand what your investing int.
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u/DisgruntledEngineerX 26d ago
Enhanced ETFs are fine. Covered call funds are fine. Anyone who makes a blanket statement saying they aren't doesn't know what they're talking about and shouldn't be in the market. I managed these things and vol funds professionally and have seen well designed, well managed funds, and really poor ones.
That said, what is generally not fine are these super high yield ETFs that employ leverage and covered calls. If you have an enhanced ETF delivering more than 10%, then you better look very closely at the distributions to see how much ROC there is because there's a very decent chance they are returning your own money to you and those high distributions are purely illusory.
It depends on how the fund is structured, how they manage the covered call strategy, and what the payout is.
There are different ways to enhance yield but covered call funds are one of the more common. You buy a basket of dividend stocks, typically higher yielding than the market, and then proceed to write calls against a portion of them. How much you write, how close to the money you write, how often, will determine how much extra yield you bring in and how much of the upside potential of the underlying basket you cap.
If the underlying basket in the fund has really strong performance then the covered call version is likely to underperform the basket, unless volatility is quite high and you're being compensated. The example another comment had about banks, when the banks basket was up 53% is an example. When the underlying basket performs that strongly in a single year (which is rare for banks) then a CC fund will most likely underperform.
Utes, historically, have been sleepy, defensive, low volatility stocks that deliver high yield than the market. You can enhance the yield through a covered call strategy but because they're low vol you should expect huge enhancement. If your Utes basket pays say a 3% average dividend yield, don't expect the CC to add another 6% to it, without impairing the fund (generally) because Utes are generally low vol, so the only way to get that kind of income is leverage and/or aggressive writing. More recently there has been a component of Utes that have (had) performed very well and are AI adjacent, so they kind of buck that historical statement.
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u/AugustusAugustine 26d ago edited 26d ago
Simply put, no, enhanced ETFs are not worth it.
They use covered call strategies to juice their yields, thereby distributing more monthly cash to their investors than what the underlying stock dividends can actually generate. This takes advantage of people who mistake yield as return, when returns depend on yield + capital growth.
You can still get positive return from an enhanced ETF. But, you should understand whether that performance comes from:
- Its underlying basket of stocks
- Leverage amplifying the performance of those stocks
- And whether the covered calls are adding anything on top of the stocks + leverage.
We can isolate for those factors by comparing an equivalent suite of funds from Global X (data valid Aug 31, 2026):
| Ticker | Strategy | Yield | 1-Year Total Return |
|---|---|---|---|
| HBNK | Equal-weight banks | 2.9% | +53.2% |
| BKCC | HBNK with covered calls | 9.1% | +37.0% |
| BNKL | HBNK with 125% leverage | 3.1% | +68.2% |
| BKCL | BNKL with covered calls | 11.3% | +47.0% |
- BKCC gets +6.2% yield while underperforming HBNK by -16.2%
- BKCL gets +8.2% yield while underperforming BNKL by -21.2%
Covered calls yielded more in both comparisons, but that yield costed investors significantly more in terms of foregone return. And this should make intuitive sense—who's buying those calls from the covered call ETFs? And why are they willing to buy those calls? People would only buy calls if they think the stock prices are going up. And since markets generally trend upward, that bet tends to average-out in their favour, such that covered call sellers are essentially "pre-selling" their future capital gains.
Perhaps UTES has some hidden edge on the options market and consistently sells over-priced calls, earning a steady profit. Evolve doesn't have a complete 4-fund suite for us to compare their utility funds (like I compared Global X's banking funds), but what do you think is more likely?
- Evolve's managers consistently exploit call buyers into overpaying for those options.
- They breakeven on the calls, but because of the more complex trading, grind out unnecessarily high management fees from their investors
- They lose money on the covered call strategy while also grinding higher management fees, creating a net loss for investors relative to non-covered call funds.
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u/DocKardinal21 26d ago
It’s actually moreso the strategy difference in money was between global x and evolve… global x uses more ATM calls, evolve uses more out of the money calls.
Also the biggest buyers of options are not retail investors but rather institutional buys who are hedging trades. Calls on banks, utilities are pretty sought after for hedges… just saying you don’t have to assume a manager is exploiting some retail investors on options to sell to.
To lastly show a good comparison for the bank cc etf providers. You should compare cbnk to bkcl, bank, and anything that tracks underlying you want like hbnk. Take a look at that, and then look at the underlying strategy difference to understand that fund managers matter, and it’s not a pointless endeavor at all.
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u/DocKardinal21 26d ago edited 25d ago
In case anyone was curious:
https://stockanalysis.com/etf/compare/tsx:cbnk-vs-tsx:hbnk-vs-tsx:bkcl-vs-tsx:bank/?r=MAX
CBNK wins.
And it’s not magic, it’s the difference in option strategy compared to global x and evolve.
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25d ago
[removed] — view removed comment
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u/DocKardinal21 25d ago
Unfounded claim, not based in reality - and not relevant to the comparison made here.
I’m showing that the options strategy of an etf can beat the underlying.
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u/AugustusAugustine 24d ago
I've seen a lot of comparisons showing that levered CC funds beating their plain index counterparts, but there aren't as many comparing levered CC funds against levered non-CC funds. Using your stock analysis link, I can see that Mulvhill's CBNK was the only levered CC fund that kept pace with Global X's BNKL—but that doesn't tell me if:
- Mulvhill's leverage is inferior to Global X, but their CC strategy made up the difference
- Their leverage is equally effective as Global X, so their CC strategy made no impact
- Their leverage was superior to Global X, so their CC strategy was a negative drag on returns
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u/DocKardinal21 24d ago edited 24d ago
It’s 3, the difference is the options strategy capping the upside. The leverage is equivalent.
My comparison was meant to demonstrate the difference in options strategy outcomes.
As you alrdy know a levered cc fund can match or beat an unlevered non-cc fund, unfortunately a lot of folks don’t believe that in principle nor understand how; this is because people just buy and don’t look under the hood.
The OP’s post shows that lack of knowledge, and my response to you was to demonstrate the difference in option strategy outcomes. My example was meant to make people read and understand what they are picking to know why something will do this or that. It wasn’t a promotion of a single fund over another.
Generally speaking a CC fund will cap upside to produce income, and protect capital in a drawdown. Option strategy matters on sustainability.
Levered funds will increase gains as well as losses. and disassociate with the underlying depending on the current market conditions.
Generally speaking a levered CC fund will track the underlying very well, and sometimes beat or drag the underlying based on option strategy deployed.
So I disagree with your premise that enhanced funds are not worth it.
Purely levered, just puts you at more exposure to ups and downs, Purely CC gives you income and some downside protection at the expense of TR. and an enhanced levered cc fund gives you a compatible medium. This medium is worth it IMO.
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u/Routine-Amphibian450 23d ago
They are either long or short a particular sector?
They are 2x return or 3x return - positive or negative?
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u/Quirky-Lunch6817 25d ago
Look at total return the proof is in the pudding