Category: DIY Investors

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A trend I ignore: covered call ETFs

RobHLeave a comment

As an investor, I only care about one thing: how much return are my assets generating? I don’t care what the source of the return is, and there’s really only two:

  • The price of the asset can increase (price appreciation)
  • The asset can pay out dividends (yield)1

The combination of these two is the total return of your investment, assuming that you reinvest any dividend into more of the same asset.

My focus on total return means that every month I have to sell some shares to generate cash. This does not bother me. Yes, I’m “eating into my capital”, but so far in retirement (nearly 1.5 years in), that hasn’t prevented my net worth from increasing nonetheless:

Covered call ETFs are a product that’s exploded in the past year or two. The idea is to sell call options for stocks/ETFs you own. The benefit is a stream of monthly income. The downside is a loss in overall return. The strategy generates very eye-catching yield results, if that’s the sort of thing you care about. For me, yield is fine, but what about the total return?

I asked Google what the most popular covered call Canadian ETF was, and it turned out to be ZWB, a covered call ETF that focuses on Canadian banks. I took a look at what it held and saw that 20%2 of it was wrapped up in ZEB, a similarly named ETF that is an “equal weight Canadian bank ETF”. Under the hood, they look rather similar. But ZWB has a lovely 6.23% yield which makes ZEB’s yield of 2.5% look downright miserly. But what about the total return3? Oh, my:

The covered call strategy is completely obliterated by the “buy the 6 banks and hold them” strategy. I tried to see if there was any time period where the covered call strategy outperformed the totally passive strategy. Turns out there was one year in the last ten:

The covered call strategy caused you to lose a little less in 2018 than you would have otherwise. Lest you think that the covered call strategy always works in down markets, it didn’t in the other negative return year — 2022:

Given the carnage covered-call ETFs cause, why are they so popular? Per Ben Felix, the preference for some investors have for recurring income over total return can play a big role here. For me, total return is always preferred. I don’t mind selling shares to get access to cash as I need it!

  1. Or the asset can give you back your own money. This is called “return of capital”. ↩︎
  2. I’m not sure why ZWB doesn’t just invest fully in ZEB; the remaining ZWB holdings are roughly equally split among the holdings of ZEB. ↩︎
  3. Comparative chart generated by https://www.dividendchannel.com/drip-returns-calculator/ ↩︎
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Custom Indexing, Direct Indexing; What’s the Deal?

RobHLeave a comment

As readers know, I’m strictly1 an index investor. Boring, yet very effective over time. Buy a basket of stocks that are based on public indices (e.g. S&P 500, TSX 60, MSCI World) and forget about it. Since it’s not possible to buy an index directly, ETFs exist to do that for you — you buy the ETF, the ETF managers buy the underlying stocks, and life is good.

This means a few things:

  • You don’t actually own the stocks of the index yourself; the ETF manager does
  • You rely on the ETF manager to do the work of adding/removing stocks from the index when the index does (and this happens all the time2)
  • You rely on the ETF manager to pay out the dividends the underlying stocks hold; this isn’t on the same schedule as the underlying companies themselves — the ETF manager will pay out dividends annually, semi-annually, quarterly or even monthly.
  • You are implicitly investing in everything the chosen index invests in. Some folks may have reservations about investing in sectors like defence industries, oil and gas, tobacco and alcohol, gambling or anything involving Elon Musk, etc.
  • You pay a (hopefully small) premium to have someone else do this work3

Now. the super cheapskates out there will rightly point out that with commission-free trades on many DIY platforms4, why bother with an index fund? Why not just own all the stocks of an index yourself and cut out the intermediary step (and the associated fees)?

Two of Canada’s DIY providers (Wealthsimple and Questrade) are now offering products that may meet that need. Although I am a client of both providers, I don’t use either of these services.

Wealthsimple Direct Indexing

Wealthsimple was the first to introduce a product that allows investors to own the underlying stocks of an index. The full story is here, but it’s not exactly what you might expect:

  • Good: You can buy either the S&P 5005 or the TSX Composite6 (about 200 companies)
  • Good: You can exclude stocks from the list if you wish
  • Bad: You can only use direct indexing in a non-registered account.
  • Good (?): You don’t actually hold all the stocks in the underlying index; sampling is used to approximate the overall index (this is done in order to facilitate tax loss harvesting)
  • Good: Trades are done automatically on your behalf to take advantage of tax loss harvesting. The idea being that (for example) an underperforming bank stock is sold and replaced with a different bank stock
  • Terrible: Although you can hold the S&P 500, you can’t hold it natively in USD. This means lots of FX fees for Wealthsimple 🙁
  • Neutral: Direct indexing costs 0.15% of holdings
  • Bad: The service sounds like it will generate a lot of trades, which means a lot of tracking of gains and losses. Wealthsimple helpfully(?) suggests using CRA’s “Autofill my return” feature.

The main value proposition of direct indexing offered by Wealthsimple is the idea of automating tax loss harvesting. For people with large non-registered portfolios, this can be an attractive proposition. Of course, you have to be able to FUND a large non-registered portfolio in the first place. In my case, this would mean liquidating my existing non-registered portfolio and incurring all the capital gains at once. No thanks.

And, I can’t stress this enough: using this service in its current incarnation to buy the S&P 500 is a terrible idea. The FX fees will eat into your returns as sure as the sun will rise tomorrow!

Questrade’s Custom Indexing

This is a brand new product from Questrade. All the details are here.

  • Good: You can define your own index, either starting totally from scratch or using one of the existing templates7.
  • Bad: It only works for USD stocks8 at the moment. It goes without saying that you should invest using USD and not CAD if you were to choose this route910.
  • Good: It can be an RRSP, TFSA, FHSA or non-registered account.
  • Bad: It doesn’t include RRIF accounts.
  • Neutral: It has to be a new account dedicated to this strategy
  • Good/Bad: Rebalancing (with “one click”) is in your hands. Good because you maintain total control, Bad because you can be inclined to try to time the market, which is almost never a good idea.
  • Neutral: Your custom index is limited to 600 holdings.
  • Good: There’s no charge!

This is a great looking service on paper. I thought that perhaps it would work for my TFSA accounts since I only hold XIC and XEQT in them but I see some limitations in doing that:

  • Custom indexing doesn’t (yet) support CAD-listed stocks
  • XEQT holds international stocks; custom indexing can’t. I suppose I could use ETFs to get around that.
  • XEQT holds ~8500 individual companies, whereas custom indexing is limited to 600 stocks

I suppose I could decompose my all-in-ones (XGRO/XEQT) into their ETF components and build a custom index based on that. This would replace the all-in-one MER with the MER of the individual components, which as I’ve shown previously, would save you money.

I could do this immediately with AOA (my USD all-in-one), but I only hold that in my RRIF account, and direct indexing doesn’t seem to allow RRIF accounts.

Anyway, it’s an interesting offering, and one that I’ll keep an eye on!

My Take

Wealthsimple’s direct indexing might be attractive to someone in the accumulation phase of their investment journey. For me, all the things I have in my non-registered accounts will eventually be sold off to fund my retirement — I’m not adding to that part of my retirement holdings.

Questrade’s custom indexing might be interesting to me once they add support for Canadian equities. Until then, another button to ignore.

  1. Well, for 80% of my portfolio anyway. The equity part. ↩︎
  2. For example, on June 2, 2026, FedEx Freight joined the S&P 500 at the expense of EPAM Systems per https://www.spglobal.com/spdji/en/documents/indexnews/announcements/20260527-1483532/1483532_fdx-amwd-56.pdf ↩︎
  3. Expressed as MER (Management Expense Ratio). This is the percentage of your holdings that goes to pay the expenses of the fund manager. For passive index funds, it should be low — 0.25% or lower. If it’s higher, it should lead you to question what, exactly, the fund is doing. ↩︎
  4. Wealthsimple, Questrade, QTrade, National Bank Direct and Moomoo all offer commission-free trading for stocks and ETFs without restrictions. ↩︎
  5. I’m simplifying here. Wealthsimple’s US offering is actually based on the Morningstar US Target Market Exposure Index which is slightly broader in scope than the S&P 500. But for all intents and purposes, close enough. ↩︎
  6. Actually, the Morningstar Canada Domestic Index ↩︎
  7. There’s not a lot of templates but they include S&P 500/200/100 and a few sectors. There’s also user-submitted templates, not sure how these are curated by Questrade (they appear to be rather polished, so I’m thinking these are seed ideas, TBD how many of these become visible over time) ↩︎
  8. This is because Questrade only support fractional shares of USD stocks and ETFs. CAD is “coming soon” but has been for about a year now. ↩︎
  9. Or you will incur a lot of FX fees… ↩︎
  10. Questrade accounts all natively support both CAD and USD holdings. ↩︎
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News: Robinhood enters Canadian Market

RobHLeave a comment

I’ve written about Robinhood, a US-based online broker in the context of DIY platforms and the seemingly never-ending gravy train of promotions.

Up until June 1, 2026, Robinhood hasn’t had any offerings for the Canadian consumer. But with the closure of their acquisition of WonderFi (aka Bitbuy, aka Coinsquare, aka Bitcoin.ca)1, they now have a Canadian presence, at least when it comes to crypto trading (something I don’t do).

Robinhood is notable in the DIY investor space because they pretty much invented the idea of commission-free trades for all stocks and ETFs. It’s not clear when (or even if) Robinhood will expand its Canadian offerings beyond crypto but other DIY brokers out there (e.g. Wealthsimple, a bit of a Robinhood clone) are certainly going to be paying attention.

Increased competition in Canadian DIY investing platforms can only benefit the DIY investor. Welcome to Canada, Robinhood. Make sure you spell “cheque” and “chequing” right 😉

  1. aka 4 companies I’ve never heard of before today ↩︎
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CAGE versus XEQT: what’s the deal?

RobHLeave a comment

It’s not that often an ETF launch causes so much buzz, but my usual feeds are all talking about Avantis CIBC CAGE. So what is it? Per its fact sheet it

Invests primarily in equity securities from developed and emerging markets through a portfolio of ETFs. The fund selects companies based on value and profitability characteristics, using a broad set of company financial fundamentals such as book value, earnings, and cash flow, together with current market prices. Designed to provide diversified global equity exposure in a single investment option.

https://www.cibc.com/content/dam/cibc-public-assets/personal-banking/investment/etfs/pdfs/cibc-fund-snapshot-cage-en.pdf

So let’s break that down:

“Invests primarily in equity securities…through a portfolio of ETFs”

Translation: CAGE is a fund of funds that’s 100% equity. Sounds a lot like XEQT/ZEQT/TEQT/VEQT. Looking a little deeper, it holds

  • CAUS: A US Equity ETF
  • CACE: A Canadian Equity ETF
  • CADE: An International Equity ETF
  • CASV: A Global Small Cap ETF
  • CAEM: An Emerging Equity ETF

Seems pretty normal so far.

“The fund selects companies based on value and profitability…using financial fundamentals”

Translation: This isn’t an index fund. CAGE is picking which companies to invest in based on balance sheet metrics. This starts to sound like a typical managed fund that typically underperforms the index it’s supposed to be measured against1.

I’m skeptical. Index (aka passive) investing has proven that it works over time.

What’s inside CAGE?

So, let’s see what’s actually inside this fund and compare it to XEQT2. As it turns out, this isn’t easy. Figuring out what’s inside CAGE requires you to navigate to each of CAGE’s holdings and look at what’s there. Irritating, but that’s not the worst of it — the constituent funds only show top 10 holdings each. That leads to a tremendous blind spot as to what you’re actually purchasing when you buy shares of CAGE. I hope CIBC fixes this, and soon. Anyway, I took XEQT’s top 10 and compared it to CAGE’s allocation.

CompanyXEQT Holding (%)CAGE Holding (%)
NVIDIA3.07%1.89%
Apple2.52%1.88%
Microsoft1.92%1.45%
Royal Bank1.81%1.88%
Amazon1.64%1.51%
Alphabet Class A1.42%0.96%
TD Bank1.30%1.44%
Broadcom1.25%<1%3
Alphabet Class C1.13%0.77%
Shopify1.07%0.99%
Total ex Broadcom15.88%12.77%
Comparing top holdings of XEQT versus CAGE

What’s immediately obvious is that CAGE doesn’t place as much money in the trillion dollar market cap companies as XEQT does.

A more interesting (?) exercise might be to take a look at CAGE’s top holdings as compared to that of XEQT.

CompanyCAGE Holding (%) / RankXEQT Holding (%)/ Rank
NVIDIA1.89% / 13.07% / 1
Apple1.88% / 22.52% /2
Royal Bank1.88% / 31.81% /4
Amazon1.51% /41.64% /5
Microsoft1.45% /51.92% /3
TD Bank1.44% /61.30% /7
Shopify0.99% /71.07% /10
Alphabet Class A0.96% /81.42% / 6
Canadian National Resources0.91% /90.72% / 16
CIBC0.86% /100.75% /14
Total14.56%17.00%
Comparing top holdings of CAGE versus XEQT

And again, not too much of interest here — CAGE holds less of the trillion dollar companies than XEQT, but the differences aren’t massive.

High level metrics

Well, since we can’t get a good feel on what’s inside CAGE, maybe looking at other vital signs are helpful?

MetricCAGEXEQT
MER0.28%40.20%
Number of underlying holdings692658475
Dividend Yield2.18%60.82%7
Target allocations8US Equity: 39.4%
Canadian Equity: 30%
International Equity: 17.6%
Global Small Cap Equity: 8%9
Emerging Equity: 5%		US Equity: 45%
Canadian Equity: 25%
International Equity: 25%
Emerging Equity: 5%
Comparing CAGE metrics with XEQT

This shows that CAGE is more expensive, holds fewer underlying stocks (we think), has a higher dividend yield (unsurprising, given its focus) and invests more in Canada than XEQT at the expense of International Equity10.

Performance

Comparing performance isn’t going to be very useful since CAGE is new, but CAGE inherits its strategy from an older US-based fund, namely AVGE. Now, to be clear, AVGE and CAGE aren’t quite the same thing. CAGE, as a Canadian fund, will tilt more to Canadian Equity holdings. But the approach used by AVGE and CAGE is the same: find quality companies and invest in them, wherever they are. So to me, comparing AVGE to its benchmark, the MSCI all-country investable market index, is a fair comparison. That index can be purchased by buying ACWI, an ETF that I’ve never heard of. I have heard of VT, so I’ll throw that into the mix since that seems to be a similar idea. Here’s what https://dqydj.com/stock-return-calculator/11 had to say about that:

Comparing performance of VT, ACWI and AVGE to gauge effectiveness of Avantis’ stock picking techniques

AVGE doesn’t have a hugely long track record either (less than 4 years in existence) but, regrettably, it’s coming up on the short end of the stick as compared to the passive index funds. Not by a lot, though.

My take

Buzz or no, I don’t think this product is for me. I buy passively managed ETFs, for the most part12. The lack of transparency on CAGE’s holdings is irritating (I am hoping/assuming that CIBC will fix this) and there’s nothing about the performance of its US sister that leaves me with FOMO. I’ll stick with The magnificent seven ETFs for now.

  1. Canada’s own CPP fund is, sadly, one of those ↩︎
  2. As of April 30, 2026 for both. I note that XEQT provides daily updates on one screen to see what’s inside. For CAGE, you have to resort to spreadsheets. ↩︎
  3. The constituent ETFs of CAGE only show top 10 holdings; Broadcom doesn’t crack the top 10 of CAUS which is 40.13% of CAGE. ↩︎
  4. Per https://usegreenline.com/en-ca/articles/cage-etf-explained. ↩︎
  5. 1782 for CAUS per https://www.investing.com/etfs/caus-toronto-holdings, 299 for CACE per https://www.investing.com/etfs/cace-toronto-holdings, 2403 for CADE per https://www.etfrc.com/CADE.TO, 1316 for CASV per https://www.investing.com/etfs/casv-toronto-holdings, 1126 for CAEM per https://ca.investing.com/etfs/caem-toronto-holdings for a total of 6926. For reasons unclear, CIBC doesn’t seem to think it’s worthy of them to publish this information themselves. ↩︎
  6. As of end April 2026, the latest thing published ↩︎
  7. As of end May 2026. ↩︎
  8. For CAGE, refer to https://www.cibc.com/content/dam/cibc-public-assets/personal-banking/investment/etfs/pdfs/cibc-fund-snapshot-cage-en.pdf. For XEQT, refer to https://www.blackrock.com/ca/investors/en/literature/product-brief/core-etf-portfolios-product-brief.pdf ↩︎
  9. 60% is US Equity, 4% is Canadian Equity per https://www.cibc.com/en/personal-banking/investments/etfs/avantis-global-small-cap-value-etf.html ↩︎
  10. XEQT is a bit of an outlier here; read Are my portfolio’s asset allocation targets “correct”? ↩︎
  11. It seems that my formerly preferred tool has gone to a registration process; I’ll have to revisit Tools I Use I guess… ↩︎
  12. Bond funds are often actively managed. ↩︎

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What’s in my retirement portfolio (May 2026)?

RobHLeave a comment

This is a monthly look at what’s in my retirement portfolio. The original post is here.

Portfolio Construction

The retirement portfolio is spread across a bunch of accounts:

  • 5 RRIF accounts
    • 3 for me (Questrade, Wealthsimple)
    • 2 for my spouse (Questrade)
  • 2 TFSA accounts (Questrade)
  • 4 non-registered accounts, (1 for me, 1 for my spouse, 2 joint, all at Questrade)

The view post-payday

I pay myself monthly in retirement, so that’s a good trigger to update this post. On May 29 before the markets opened, this is what it looked like:

The portfolio is dominated by my ETF all-stars, (and if not an all-star, they are probably on the Magnificent Seven ETFs list). The charts look almost identical to the previous month; AOA is up a bit mostly because the USD has been on a bit of run this month, increasing almost 1% month over month :

Plan for the next month

The asset-class split looks like this; you can read about my asset-allocation approach to investing over here.

Here I have some work to do, since I’ve recently revisited the target allocations I have for each asset class:

  • 5% cash or cash-like holdings like ICSH and ZMMK
  • 15% bonds/income (most are buried in XGRO and AOA, rest are in XCB)
  • 23% Canadian equity (mostly based on ETFs that mirror the S&P/TSX — HXT and XIC); this is up from the old 20% target
  • 37% US equity (dominated by ETFs that mirror the S&P 500); this is up 1% from the old target
  • 20% International equity (mostly, but not exclusively, developed markets); this is down 4% from the old target

At the same time, I’m looking to get rid of my USD allocations since they are adding needless complexity and I no longer have a way to easily spend USD anyway. This is going to be a multi-month process1, but I want to be USD free by the end of the year.

So, next month, I will begin. I’ll first tackle ICSH in my non-registered account, which I’ll do once it pays out its monthly dividend in the first week of June. And I’ll begin replacing AOA with XGRO2.

Overall

Part of using VPW3 as a strategy is the need to calculate your retirement net worth on a monthly basis. And once again, a new all-time high:

My VPW-calculated salary continues to increase, albeit at a more modest rate, as expected.

  1. Multi-month because I want to make sure I don’t get burned by a sudden change in USD/CAD FX rates. By converting some every month, I can smooth out any weird spikes. ↩︎
  2. The biggest difference between AOA and XGRO (besides the native currency) is the amount of Canadian Equity content. AOA has a very small amount (about 3%) whereas XGRO has 20% ↩︎
  3. Variable Percentage Withdrawal, my chosen decumulation strategy. ↩︎