Q&A With Gordon Pape: Finding a Tax Efficient ETF for Retirement

In this Q&A, financial expert Gordon Pape recommends a tax efficient ETF to a reader preparing for retirement.

Q – I am planning to retire in 2025. However, it could be earlier. I have some funds sitting in GICs in a non-registered account. I have no room in my TFSA. Can you recommend a tax efficient or tax deferred ETF or mutual fund? Not sure if I am right but mutual funds appears to be more expensive. I am looking for an investment to produce monthly income. At the beginning, I will reinvest the monthly income, but I will expect to take it every month when I retire. – A. M.

A – Take a look at the BMO Covered Call Canadian Banks ETF (ZWB-T). Based on your goals, it appears to be well-suited for your needs. It invests in the top six banks, so the risk level is relatively low. The managers use covered call writing to enhance cash flow. Currently, the fund is paying $0.11 a month ($1.32 a year), which works out to a yield of just over 7 per cent based on the recent price. Most of the distributions are received as eligible dividends or return of capital, so the fund is highly tax efficient. The ETF was launched in 2011 and has a ten-year average annual compound rate of return of 10.4 per cent. The management expense ratio is 0.71 per cent. – G.P.

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