This isn’t another deep dive into one of the Big Five banks. Instead, let’s look at a unique exchange-traded fund (ETF) that gives you exposure to Canada’s largest banks while taking a different approach: one that aims to enhance both performance and income.
Hamilton Enhanced Canadian Bank ETF (TSX:HCAL) manages over $600 million in assets and has quietly outperformed many of its peers thanks to some structural advantages built into the fund.
For income-focused investors who want higher yields without chasing riskier assets, HCAL offers something a little different. Here’s what you need to know.
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What is HCAL?
At its core, HCAL tracks the Solactive Equal Weight Canada Banks Index. That means it holds a fixed basket of Canada’s largest banks and weights them equally, rather than based on their size in the market.
This equal-weight strategy helps balance risk across the sector and ensures that no single bank dominates the portfolio. For a small sector like Canadian banking, equal weighting can lead to better diversification and more consistent returns compared to a market-cap-weighted approach.
But HCAL doesn’t stop there. The ETF also uses modest leverage at 1.25 times the underlying portfolio. This isn’t the kind of leverage you see in daily-reset trading ETFs, though.
Instead, it functions more like a built-in margin loan, where the fund borrows to slightly increase exposure to its holdings. The idea is to boost income and long-term total returns, while still holding a simple, buy-and-hold portfolio of dividend-paying bank stocks.
This structure allows HCAL to offer more income than a plain-vanilla bank ETF while keeping the strategy relatively straightforward. It doesn’t rely on derivatives or options. Just traditional stock exposure with a small amount of leverage layered on top.
HCAL income potential
HCAL pays a monthly distribution of $0.1270 per share, which, at the current share price, works out to an approximate yield of 5.6%. This is calculated by taking the monthly payout, multiplying it by 12, and dividing by the current share price. It’s a forward-looking projection assuming the current payout stays constant.
That yield can fluctuate. If the underlying banks raise their dividends, HCAL’s income could grow over time. However, if interest rates rise and borrowing costs increase, the leverage used by the fund could weigh on returns or lead to a trimmed payout.
Still, for investors who want enhanced exposure to Canadian banks and a higher-than-average yield, HCAL offers a long-term income play designed to squeeze a little more juice out of one of Canada’s most dependable sectors.
