Turning a nervous market into monthly income

When Harvest ETFs brought its equity income funds together under a single Income Leaders banner this spring, it reflected where the firm sees advisor demand heading. Advisors are increasingly looking to equity income strategies to fill a role once dominated by bonds, at a time when the case for staying invested remains strong but the reasons for being on edge have not disappeared.

James Learmonth has spent the past several years building the funds meant to meet that demand for equity income that can stand in for bonds.. The Harvest co-chief investment officer, who stepped into the role this January and runs four actively managed funds as lead portfolio manager, oversees the covered-call equity income suite that now carries the Income Leaders name.

“We believe the best way to build and preserve wealth is long-term investment in great companies,” Learmonth says. “We’re looking at companies that dominate the markets they operate in.”

A cap that defines the strategy

The mechanic that separates the Income Leaders approach from a higher-octane income product is a hard limit on how much of each holding the funds will write options against. For most of the lineup, Harvest will not sell call options on more than 33 percent of any single position.

The reason is straightforward. A covered call generates cash by selling away part of a stock’s upside, so the more of a position a manager writes against, the more growth is forfeited when the stock climbs. Investors worried that a high payout means giving up the compounding are asking the right question, Learmonth says, but he argues the cap answers it.

“There’s always growth to be found,” he says. “We try to balance the income from the covered call strategy with long-term investment in the equities, and we do that by limiting how much we can write on any individual position.” Holding the writing to a third, he adds, means “investors can feel comfort that they’re always at least two-thirds exposed to upside in the equities.”

That structure is what lets the firm describe the suite around three tests: strong companies, quality portfolios and high income. Stock selection skews toward businesses that have already traded through more than one economic cycle, many of which, Learmonth notes, “have demonstrated an ability to invest during downturns so they come out even stronger on the other side.” The longest-running fund in the group, the Harvest Healthcare Leaders Income ETF (TSX: HHL), has paid monthly distributions for more than a decade, the track record the firm leans on to argue the model holds up across conditions.

Learmonth dates the broader shift toward this kind of product to the pandemic, when central banks cut rates aggressively and bond yields collapsed. “Investors who needed cash flow started looking for alternatives to the fixed income they’d traditionally relied on,” he says, “and that’s where covered calls came in to fill the void.”

A barbell for 2026

Asked where durable income sits this year, Learmonth describes a barbell, weighted at both ends rather than concentrated in the middle. “We’re still optimistic on equity markets and think they’re poised for gains as we move through this year,” he says, “but we’re not naive to the fact that there’s a lot of uncertainty out there right now, whether it’s geopolitical tensions or trade policy. So, we’ve been advocating a barbell approach.”

On the growth end is technology, where he says artificial intelligence is the headline driver but not the whole story. “The tech sector is made up of a number of long-term growth themes beyond AI,” he says, “from advanced communication networks to electric and autonomous vehicles to cloud infrastructure, which was a theme even before AI but has been supercharged by it.”

He sees the same demand spilling into industrials as a secondary play, particularly companies tied to power generation, and expects that cyclical group to benefit from two policy tailwinds: the tax cuts and capital-investment incentives in last year’s US legislation, and the lagged effect of rate cuts that began in late 2024 and are only now reaching real activity.

The defensive end is healthcare, a sector he concedes has lagged this year. “Right now healthcare is really standing out as a true value opportunity in a market that’s been very heavily focused on growth,” he says. “As economies grow and become wealthier, their citizens tend to demand better and more access to healthcare,” Learmonth says, citing aging populations and rising wealth in emerging markets alongside steady innovation in the sector. It is the same logic that sits behind HHL on the income side of the portfolio.

The harder question for advisors isn’t whether to own income. It’s whether a covered-call fund can do what bonds used to do, throw off steady cash while keeping clients in the market, and still hold on to enough upside to be worth owning as a stock.

Disclaimer

The views and/or opinions expressed above are of a general nature and are for informational purposes only. The contents should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage personal investment strategies. Investors should consult their investment advisor before making any investment decision.

Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds managed by Harvest Portfolios Group Inc. (the “Funds”). Please read the relevant prospectus before investing. The Funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements in this communication constitute forward-looking statements (“FLS”). These statements are not historical facts but reflect the current expectations of Harvest, the Fund’s manager, regarding future results or events, and are subject to risks and uncertainties that could cause actual results to differ materially. Although Harvest believes the underlying assumptions are reasonable, FLS are not guarantees of future performance, and undue reliance should not be placed on them. Harvest undertakes no obligation to update or revise any FLS, except as required by law.

This article was produced in partnership with Harvest ETFs