Harvest Premium Yield Treasury ETF T.HPYT

About HPYT net asset value

[Adventurous]

Like some of you, I am deeply invested in HPYT, which is indeed providing a nice monthly dividend. But I was trying to figure out why its NAV has gone down since issuance at $12 about a year ago, while US rates had basically remained stable. I thought that selling calls, while providing a nice premium, somewhat limited HPYT appreciation when the price of bonds held in its portfolio was on its way up. Turns out there is indeed a trade off between the dividend and NAV. As the people at Harvest have kindly explained to me:

 

 

Thank you for your e-mail and interest in Harvest Premium Yield Treasury ETF (HPYT:TSX). We asked our Portfolio Management Team to respond to your comments/observations. Please see the following:
 
The NAV for HPYT is down below the initial launch price primarily because of the movements in the underlying bond ETFs held in the Fund, their movements given bond yield changes in the US and importantly the covered call component given these movements since launch. For example, one of the holdings of HPYT is the iShares 20+Year Treasury Bond ETF (TLT:US).
 
While on the surface, bond yields from the start of HPYT’s listing in late September 2023 to today have been relatively flat (and down slightly) resulting in TLT being up from that start point to today.  However, the movements between the start of the HPYT and today have been very volatile as movements in bond yields have gyrated significantly in very short periods. 
 
Part of the trade off of the very high premiums that are generated by the covered call option strategy is that the portion of the portfolio that has written calls will generally not participate in movements in the upside in the bond price. The trade off is a high cash flow to support the high monthly distribution.
 
We write monthly call options to generate monthly cash flow and that means that we will forgo upside on a portion of the portfolio but will still get the downside should prices come back down.  Periods such as October to December when the TLT was up ~20%, HPYT did not participate in that movement to the same degree because of the covered calls.  As bond prices came back down though, HPYT was still exposed to the downside. Again, with the trade off being the high monthly cash flow.
 
Unfortunately, we can not present total return statistics until HPYT has over one year of history and we do believe it is important to assess a total return (which includes monthly distributions paid) given the nature of the high cash flows.  We would point out that the Fund has paid (including the distribution that will be paid on September 9^th) $1.65 since inception.
 
To complement the above, the primary focus of the HPYT’s investment objective is to provide investors with high monthly cash distributions using a covered call strategy.
 
We hope the above is helpful.
 

[JoeBravo1]

Thanks for sharing that communication with Harvest. It pretty much sums up how the fund works.  It's paid out $1.65 since its IPO at $12 which means that since then those who invested at the IPO price are up $1 per shares as of the last close of $11.35. But this is a monthly income vehicle, so it's not just about appreciation.  Longer term, I believe it will move higher as