I don’t typically enjoy making macroeconomic predictions, but this article demands it, so here goes: my take for 2025 is that the utility and real estate sectors are likely to see higher volatility, though not necessarily higher returns.
Why? There’s a lot of uncertainty ahead. Canada has front-run the U.S. in terms of the number and pace of interest rate cuts, but our economy is struggling in key areas like productivity and GDP per capita.
Couple that with declining immigration numbers and the increasing frequency and severity of natural disasters, and it’s not hard to see why these sectors might face challenges.
But here’s the silver lining: higher volatility benefits one specific type of investing strategy—covered calls. Normally, covered call strategies sacrifice some upside potential in exchange for generating a steady income. That income comes from options premiums, and the more volatile the underlying asset, the greater those premiums tend to be.
With that in mind, here are two exchange-traded funds (ETFs) I’ll be keeping a close eye on in 2025 that track these two sectors.
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Utility stocks
First up for utilities is Hamilton Utilities YIELD MAXIMIZER™ ETF (TSX: UMAX).
What I like about UMAX is its broader approach to the utilities sector. It’s not just about the usual suspects like electric generation, transmission, and gas.
This ETF also includes pipelines, waste disposal, railroads, and telecoms—sectors that were beaten down throughout 2024, particularly telecoms.
As the name suggests, UMAX is all about yield. The ETF employs a strategy of selling at-the-money covered calls on 50% of its portfolio, enabling it to deliver an impressive 14.67% distribution yield, paid out monthly.
Real estate stocks
For real estate, my pick is Hamilton REITs YIELD MAXIMIZER™ ETF (TSX: RMAX).
What sets RMAX apart from most real estate investment trust (REIT) ETFs is its diversification. It splits its portfolio evenly between U.S. and Canadian REITs, giving it a unique edge.
The inclusion of U.S. REITs provides exposure to tech-focused sectors like telecom and data centres—a refreshing alternative to the typical office and residential-heavy allocations found in many other REIT ETFs.
As with UMAX, the focus of RMAX is income first. The ETF employs at-the-money covered calls on 30% of its holdings, enabling it to generate an impressive 9.82% distribution yield, with monthly payouts.
