Canadian vs. U.S. Covered-Call ETFs

Canadian investors can buy covered-call ETFs listed in Canada or in the United States. The strategies can look similar, but several factors affect what you actually keep.

Currency

U.S.-listed ETFs trade and pay distributions in U.S. dollars. Converting between currencies can cost you through exchange fees, and changes in the exchange rate raise or lower your returns in Canadian-dollar terms. Some Canadian-listed funds hold U.S. stocks and offer currency-hedged versions.

Taxes

Distributions from U.S.-listed ETFs paid to Canadian residents are generally subject to U.S. withholding tax, and the treatment can differ by account type (for example RRSP, TFSA or a non-registered account). Canadian-listed funds have their own mix of income types, such as eligible dividends, capital gains and return of capital, which are taxed differently. Speak with a qualified tax professional about your situation.

Fees and strategy

• Compare the management fee or MER of each fund.
• Check whether calls are written on individual stocks or on an index.
• Check what share of the portfolio has calls written on it, and whether the fund uses leverage.

The bottom line

Do not compare funds on distribution rate alone. Look at currency, taxes, fees, volatility, total return and the distribution policy together.