In this episode, Mark Noble, Executive Vice President and Head of ETF Strategy at Horizons ETFs, joins us. We dive deep into the benefits of yield producing strategies, fixed income strategies, and the focus of our conversation – covered call ETFs. We dive into the current market volatility and how rising interest rates and inflation are impacting market dynamics, and explore how investors can shift some of their matched equity exposures in this period of economic and market uncertainty to enhance portfolio yield, mitigate risk, discuss their tax advantages, and the idea that these strategies enable you to do all of the above without having to alter core fixed income allocations, or investment policy.
Mark discusses the launch of Canada’s first ultra-short-term Canadian and US T-bill ETFs, discussing why these weren’t previously available. Mark also offers his insights on alternative assets, diversifying strategies, and the role of covered calls as a timely and productive equity alternative strategy.
Our conversations turns to Noble’s take on the interesting macroeconomic shifts in the gold market and the impact of the financial crisis and Fed’s balance sheet expansion.
Finally, we wrap up with a discussion on the optimal conditions for implementing covered call strategies, especially in our current uncertain market environment. Tune in for a deep dive into ETFs, market volatility, and timely strategic investment tactics.
Timestamped Highlights:
Yield Producing Asset Strategies – Why Now? [00:00:00] Introduction
Launch of Canada’s First Ultra-Short-Term Canadian and US T-Bill ETFs [00:02:13] Mark Noble talks about the launch of Canada’s first ultra-short-term Canadian and US T-bill ETFs by Horizons ETFs, and why there were no T-bill ETFs on the market before.
Current Market Conditions and Volatility [00:03:11] Mark Noble and the host discuss the current market conditions, volatility, and the shift in market dynamics due to rising interest rates, inflation, and investors seeking strategies to outpace inflation and traditional GICs.
Short-term T-bills as a cash alternative [00:08:33] Discussion on the attractiveness of short-term T-bills as a cash alternative and a low-risk way to generate income on the bond portfolio.
Market conditions and volatility [00:10:09] Talk about the current market conditions, volatility, and the shift in market dynamics.
Covered call ETFs [00:14:25] The rise of covered call ETFs as a mainstream investment strategy, their risk-return perspective, and how they can enhance the yield of an overall portfolio.
Covered Call Strategy and Premiums [00:17:29] Mark Noble explains how demographic shifts and rising interest rates have increased premiums for covered call strategies, which aim to generate monthly income while maintaining capital appreciation.
Tax Treatment of Covered Call Income [00:22:17] Mark Noble discusses the tax treatment of covered call income in Canada, which is viewed as hedging and generally taxed as capital gain. However, there are nuances to this treatment, and in some scenarios, the income may be taxed as return of capital.
Alternative Assets and Diversifying Strategies [00:25:22] Pierre and Mark Noble discuss covered call strategies as alternative assets and diversifying strategies, particularly when writing calls at or near the money. They also touch on the importance of considering the total return and the potential impact on the underlying securities.
Covered Call ETFs and Equity Alternative [00:25:50] Mark Noble explains the risk-return profile of covered call ETFs and how they can be an equity alternative.
Gold Market and Macro Shifts [00:27:27] Mark Noble discusses the macroeconomic shift in the gold market and the central bank gold buying trend.
Financial Crisis Contagion and Fed’s Balance Sheet [00:33:22] Mark Noble talks about the similarities between the current situation and the financial crisis, and the Fed’s balance sheet expansion due to the bailout.
Covered Call Strategies Case Wrap-up [00:38:11] Mark Noble and the host discuss the benefits of covered call strategies in the current market conditions, with interest rate volatility and uncertainty around inflation creating an advantage for call writers.
Optimal Conditions for Covered Calls [00:39:32] The host and Mark Noble talk about how covered call strategies have always been available, but the current market conditions make them more optimal than ever before.
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Where to find Mark Noble:
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Mark Noble on Linkedin