Looking for a better retirement income option for your clients?

This ETF provider rolled five successful ETFs into one to provide a better income solution

Looking for a better retirement income option for your clients?

This article was produced in partnership with Harvest ETFs.

Retirees who have diligently saved for their future with Registered Retirement Savings Plans (RRSP) have a challenge to their retirement income as they deregister those and pay all the taxes. It’s even challenging if they transferred the funds to a Registered Retirement Income Fund (RRIF) as those must be withdrawn on a schedule that may not offer retirees the best tax advantage over time.

That can leave them shorter of retirement funds than they anticipated, but Harvest ETFs has an exciting new solution for investors to consider  that generates a longer-term cash flow from an investment. It could also save them from having to collapse their RRIF or erode their capital over time.

Harvest ETFs launched its Harvest Diversified Monthly Income ETF(HDIF:TSX) on February 16 and, even though it’s only a month old, the ETF is already proving to be a winner as it now holds over $30 million in AUM.

“The capital that has come into this ETF has been among the fastest we’ve seen across our funds that we’ve launched over the pat decade,” Paul MacDonald, Harvest ETF’s Chief Investment Officer and Portfolio Manager told Wealth Professional.  

The HDIF ETF was established to provide a core one-stop selection for investors interested in retirement equity income. It is a “fund of funds”, said MacDonald, which rolls five income ETFs using covered call strategies into a single package, generating enhanced monthly cashflows. It also doesn’t charge an additional management fee for the collective group beyond underlying fees, and now is seeing an 8.5% monthly distribution.

The five Harvest ETFs held in HDIF are typically sector focused in areas of the market that have long-term secular growth tailwinds. They include large cap health care, large cap global utilities, technology companies, US banks, and leading brands with a consumer basis.

“One of the reasons why we’ve had success in each individual ETF is that we think there’s a void of quality, income-oriented products out there for investors,” said MacDonald. “That means that, even though we’ve had interest rates bump up a little, your traditional fixed income still has an exceptionally low rate of return. There are really no alternatives with relatively small dividend yields on the broader markets, but investors have to find sources of cash flow from their investments."

Harvest packaged its five equally-weighted ETFs that include exposure to both defensive and growth focused areas of the market and areas that have some exposure to both higher and lower rates into one diversified income ETF. It now captures over 90 positions held in the underlying ETFs to provide a more diversified solution. This also allowed them to add a modest 25% leverage to it, he said, “so we can even further enhance that monthly cash flow from their investments”.

“It’s a really nice mix of positions that give it a little bit of potential for a big smoother ride, given some of the macro volatility that we’ve seen,” said MacDonald.

“We put that package together as a solution for people to get a one-stop position when they’re looking for income, whether it’s in their registered accounts or because of the tax efficiency in their non-registered accounts. But it’s really to be able to get an enhanced yield while still be positioned for some growth over time.”

While MacDonald acknowledged that Harvest has one competitor in the field, he said, “we’ve got track records on our individual ETFs” that comprise HDIF. The five underlying ETFs were started from 2014 to 2019, so have three to seven plus years of proven  performance.

“We’ve got a really good suite of ETFs that are really highly complementary and very well diversified across sub sectors,” he said. “Our mantra is we want to own really good businesses in areas that have secular long-term growth trends. That’s exactly what HDIF is invested in.”