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Canada HHL ETF: Your Strategy for Monthly Healthcare Dividends and the Hidden Risks (Harvest Healthcare Leaders Income ETF Units Class A)

 Are you looking to invest in the healthcare sector while generating a steady stream of monthly income? The H-HL ETF (Harvest Healthcare Leaders Income ETF Units Class A) appears to be an attractive solution that aims to achieve both goals. However, focusing solely on its high monthly dividend yield can cause you to overlook its unique structure and potential risks. Without a clear understanding of how the H-HL ETF generates its income and what a potential investor must know, your investment decision could be compromised. This article dissects the core principles of the Canadian Healthcare ETF, H-HL, and is designed to help you make a wise investment choice.

What is the H-HL ETF? The Secret Behind Its High Dividends

1. H-HL ETF's Investment Strategy and Holdings

The H-HL ETF is a healthcare sector ETF managed by the Canadian asset management firm, Harvest Portfolios Group Inc. Its primary objective is to generate consistent monthly cash flow for investors while seeking long-term capital appreciation by investing in global leaders in the healthcare industry.

The H-HL ETF's portfolio is made up of some of the world's most prominent healthcare companies:

  • Johnson & Johnson

  • AbbVie

  • Eli Lilly

  • Pfizer

  • Merck

These companies consistently generate strong earnings from innovative medicines and medical technologies.

2. The Covered Call Strategy: The Source of High Dividends

The H-HL ETF uses a covered call option strategy on approximately 25% of its portfolio. A covered call involves selling call options on the stocks it holds to generate premium income. This premium income is then distributed to investors as the H-HL ETF dividend. This strategy allows H-HL to provide consistent monthly income regardless of market conditions.

(Image Alt Text: Logos of the companies in the H-HL ETF's portfolio)

Common Questions About Investing in the H-HL ETF

Q1: How Stable is the H-HL ETF?

Since H-HL invests in the essential healthcare industry, its volatility is relatively low compared to other growth-focused sectors. The covered call strategy provides a degree of protection during market downturns. However, this strategy cannot completely prevent capital loss during a major bear market.

Q2: Can I Expect Capital Appreciation?

One of H-HL's biggest drawbacks is its limited potential for capital appreciation. The covered call strategy inherently forgoes a portion of the potential gains during a significant market rally. For example, even if the underlying healthcare stocks in its portfolio experience a rapid price increase, the ETF's share price appreciation will likely be capped by the option premiums it receives. This can be a disadvantage for investors focused on long-term wealth growth.

Q3: How Does H-HL Compare to Other ETFs?

  • H-HL vs. SCHD: SCHD (Schwab U.S. Dividend Equity ETF) does not use a covered call strategy and focuses on companies with a history of dividend growth. While its dividend yield may be lower than H-HL's, it has higher potential for capital appreciation.

  • H-HL vs. JEPI: Both JEPI (JPMorgan Equity Premium Income ETF) and H-HL use a covered call strategy. However, unlike H-HL's focus on a single sector, JEPI invests across the S&P 500. This makes JEPI a more diversified option for those who wish to avoid sector-specific risk.

Conclusion: Is the H-HL ETF Right for Your Portfolio?

The Canadian Healthcare ETF, H-HL, is an attractive option for investors seeking a high monthly cash flow. For those who want to invest in the stable healthcare sector while earning a consistent income, it can be an excellent choice.

However, before you invest, you must consider these factors:

  1. The Double-Edged Sword of Covered Calls: High dividends come at the cost of limited capital appreciation.

  2. Risk of Capital Loss: During significant market downturns, the ETF's value can still decline, potentially leading to capital loss.

The H-HL ETF is not a one-size-fits-all solution. You should carefully determine whether your investment goal is a steady monthly income or long-term capital growth before making a decision.

Credible Sources

  • Harvest Portfolios Group Inc. Official Website: We referenced the prospectus, investment strategy, and reports for the H-HL ETF. (Source: https://www.harvestportfolios.com)