Benefits of Covered Call Utilities Strategy

Investors face many challenges in the current market, including global uncertainty and market volatility. However, it’s important to remember that volatility is a normal and healthy part of the investment process. In some cases, volatility can present new opportunities for investors.   

If you’re looking for ways to benefit from persistent volatility, you might consider a covered call strategy. A covered call is a financial strategy that can generate income while lowering downside risk and providing attractive returns. It can also offer targeted exposure to a particular sector, such as utilities.

Utilities and utility services

Utilities include basic services like electricity, gas and water and are used by nearly every home and business. For most people, utilities are considered an essential service needed to survive. As a result, the demand for utilities and utility services tends to be inelastic. It doesn’t matter if there’s an economic downturn or an impending recession, people will continue to take showers and heat their homes. This makes investing in utilities and utility services an attractive and income generating option.

Benefits of investing in a covered call ETF strategy

A covered call ETF strategy can offer investors a number of benefits, including:

• Convenience. The process of writing calls can be time-consuming and complex. A covered call ETF offers a more convenient option.
• Income. Receive a regular income stream from the option premium earned and any dividend income from the underlying stocks.
• Downside Protection. In declining markets, a covered call offers income and some downside protection through the options premium generated.
• Tax efficiency. Options premiums are taxed as capital gains making them more tax efficient.  

Benefits of investing in utilities

Investing in a covered call ETF that targets utilities and utility services comes with some additional benefits, including:

• Targeted Exposure. Exposure to a portfolio of high-quality utility companies can provide investors with the ability to generate attractive income.
• Portfolio Protection. The defensive nature of utilities can provide protection to investor portfolios in times of heightened volatility and uncertainty.
• Income Generating. Utilities have the potential to offer reliable income and stable income with above-average dividend yields. With a covered call utilities strategy, investors can enhance their income potential.

Opportunities to invest in utilities and utility services

CI Utilities Giants Covered Call ETF (CUTL) offers investors an opportunity to take advantage of enduring volatility.

CUTL invests in an equally weighted portfolio of 20 or more of the largest utilities companies listed on a North American stock exchange with a covered-call option overlay. Call options are written on up to approximately 25% of the underlying portfolio. This leaves the vast majority of the portfolio uncovered, allowing investors to capitalize on the appreciation of the underlying securities in the portfolio.

Is a covered call utilities strategy right for you?

In a volatile environment, covered call strategies offer a compelling solution by providing targeted exposure, tax-efficient income and downside protection. Investing in CI Utilities Giants Covered Call ETF (CUTL) provides several added benefits, thanks to the defensive nature of utilities and their reliable and income generating potential. Visit our ETF landing page to learn more about our covered call ETF solutions as well as our other solutions.

IMPORTANT DISCLAIMERS

Commissions, management fees and expenses all may be associated with an investment in exchange-traded funds (ETFs). You will usually pay brokerage fees to your dealer if you purchase or sell units of an ETF on recognized Canadian exchanges. If the units are purchased or sold on these Canadian exchanges, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them. Please read the prospectus before investing. Important information about an exchange-traded fund is contained in its prospectus. ETFs are not guaranteed; their values change frequently, and past performance may not be repeated.

The CI Exchange-Traded Funds (ETFs) are managed by CI Global Asset Management, a wholly-owned subsidiary of CI Financial Corp. (TSX: CIX). 

CI Global Asset Management is a registered business name of CI Investments Inc. ©CI Investments Inc. 2023.  All rights reserved.