Topic: How To Invest

Q: Can I get your opinion on the Global X Gold Producer Equity Covered Call ETF? It offers a very high yield for holding gold stocks. Thanks.

Article Excerpt

A: Global X Gold Producer Equity Covered Call ETF, $27.75, symbol GLCC on Toronto, (Units outstanding: 8.4 million; Market cap: $233.1 million; www.globalx.ca) invests in an equal-weighted portfolio of North American-listed gold mining companies. The ETF’s portfolio currently holds 10 stocks, with all the top producers such as Barrick Gold, Agnico Eagle, Kinross Gold, and Newmont Corp. represented. The fund yields a high 7.5%. However, the dividend income that the ETF receives from its own portfolio is insufficient to cover its distribution to its unitholders. To make up the difference, the fund’s managers have to make a profit on trading its portfolio. The ETF also aims to raise its returns by writing call options on the portfolio’s securities. Selling call options generates a stream of income for the fund, but options dealing generates a lot of brokerage commissions, which eat away at the ETF’s capital. More important, selling calls also tends to diminish any capital gains that the fund’s portfolio might generate. When gold…