The North American Infrastructure Income ETF Portfolio

As a Canadian, you're probably familiar with how our country's social security program, the Canadian Pension Plan (CPP), invests around 16% of its current portfolio in infrastructure and real assets.

This might sound complex, but it essentially means that CPP puts money into companies that manage essential, regulated services such as water, gas, electricity, and telecommunications. They also invest in transportation infrastructure like toll roads, ports, railroads, and airports, as well as energy infrastructures such as pipelines and storage facilities.

CPP touts several advantages of such investments. These assets typically generate stable long-term cash flows, often backed by long-term contracts or regulatory frameworks. They also carry minimal substitution risk since the essential nature of their services means they are less likely to become obsolete. Additionally, many of these assets have revenue tied to inflation, which can protect investors from the eroding effects of rising prices.

While you might not have the same access to private infrastructure assets like the Canadian Pension Plan (CPP) does, you can still gain exposure through public companies—and not just by buying into well-known entities like Brookfield Infrastructure Partners LP (BIP.UN).

In the following sections, I'll introduce three Hamilton covered call sector ETFs. You can combine in equal-weight proportions to create an income portfolio of North American infrastructure-themed equities yielding over 10% on average.

Hamilton Utilities YIELD MAXIMIZER ETF (UMAX)

UMAX begins our portfolio with a 33% allocation. Unlike most utility ETFs, which typically focus solely on sectors like water and electric, UMAX adopts a broader approach.

It includes some of Canada's largest pipelines, telecom companies, railways, and even a garbage collection company, offering a diversified and forward-thinking perspective on what constitutes utilities.

UMAX is structured with an income-first strategy, utilizing at-the-money covered calls on up to 50% of its portfolio. This method of selling covered calls means that while the upside potential of the ETF is capped, it significantly enhances the income distributions, which are paid out monthly.

The last distribution was paid on August 8th, amounting to $0.1695 per share. With UMAX's current net asset value (NAV) standing at $14.56 as of August 12th, we can calculate the distribution yield.

To find this yield, we take the most recent monthly distribution, annualize it by multiplying by 12, and then divide by the current NAV: 13.97%

This distribution yield of approximately 13.97% represents the annual income an investor can expect to receive from their investment in UMAX as a percentage of the ETF's current NAV. However, keep in mind this can change based on market conditions.

Hamilton Energy YIELD MAXIMIZER ETF (EMAX)

While UMAX includes some energy companies in the form of pipelines, it doesn't capture the broader energy sector, particularly the big oil supermajors and exploration and production companies that are most sensitive to commodity prices and thus to inflation.

To address this gap, the next 33% of our portfolio is allocated to EMAX, which provides exposure to the largest energy companies in North America. This exposure is crucial for diversifying within the energy sector and capturing the upside potential linked to fluctuations in energy prices.

Like UMAX, EMAX employs an at-the-money covered call strategy, but with a coverage of only 30% of the portfolio. This allows the ETF to maintain 70% of the upside potential, which is significant given the typically high volatility of energy stocks. High volatility increases the value of the options premiums, enhancing the income generation of the ETF.

The last distribution for EMAX was on August 8, amounting to $0.168 per share. The current distribution yield based on the ETF's Net Asset Value (NAV) of $16.40 as of August 12 is 12.29%.

Hamilton REITs YIELD MAXIMIZER ETF (RMAX)

Finally, our portfolio is rounded out with a 33% allocation to RMAX, which offers exposure to the largest Real Estate Investment Trusts (REITs) in North America.

This ETF encompasses virtually all REIT subsectors, including residential, retail, office, warehouse, self-storage, healthcare, cell tower, and data center REITs. Its hybrid focus across both the U.S. and Canada is crucial, as each country provides complementary exposures.

Similar to EMAX, RMAX employs a covered call strategy on 30% of the portfolio. While the REITs themselves typically offer decent income through regular dividends, the addition of covered call premiums enhances the overall yield and offers a tax efficiency advantage, as these premiums are taxed as capital gains rather than ordinary income.

Based on RMAX's August 8th monthly distribution of $0.135 and NAV of $17.38 as of August 12th, the ETF is currently paying out a 9.32% distribution yield.