Most investors spend their time wondering what to do when stock prices rise or fall. However, one of the hardest periods is when stock prices don’t do anything at all.
Sometimes, stocks can spend a long time moving sideways. During this time, there is little in the way of capital gains to show for their patience, which places an emphasis on income if you are seeking a return.
This is equally challenging if you are investing in growth-oriented sectors like healthcare, where many companies pay relatively modest dividends.
The Harvest Healthcare Leaders Income ETF (TSX:HHL) is an example of one exchange-traded fund (ETF) that has found a novel way to deal with this challenge. Through a strategy that includes writing options as part of its portfolio management, it provides both monthly income for income-focussed investors, while also providing access to the growth prospects of some of the leading and most innovative healthcare companies.
How the Harvest Healthcare Leaders Income ETF generates monthly income
Listed companies typically don’t pay dividends monthly. Instead, most companies only pay dividends two to four times a year (if they pay them at all).
For example, as at the time of writing, the average dividend yield of the 20-stock portfolio was around 1.52%. However, thanks to its strategy, it generated an income return for investors over the past twelve months of around 9.31%.
More importantly, this strategy allows the ETF to pay investors distributions every month, making it a regular source of investing cash flow.
The way it does this is through a covered call strategy.
By writing options on the stock that it owns, Harvest can collect a series of premiums paid by those who buy those call options.
Of course, there are still some risks. While options do provide regular income and can cushion some of the downside associated with the stocks in the portfolio, they can also limit the potential upside from rising stock prices. Options also tend to become less valuable in lower-volatility markets, those markets where stock prices don’t move much.
Why combine covered calls with healthcare stocks?
The Harvest Healthcare Leaders ETF is a portfolio of 20 of the largest US healthcare companies.
These span all aspects of the healthcare industry, such as pharmaceuticals, biotechnology, healthcare equipment, life sciences, and other services. This includes companies like life sciences company, Agilent Technologies (A), robotic-assisted healthcare systems provider, Intuitive Surgical (ISRG), and the pharmaceutical company Eli Lilly (LLY), which has been a highly successful investment over the last five years.
Healthcare is also an industry that investors are paying close attention to due to several tailwinds, such as:
- An aging population in many developed countries
- Fast-growing healthcare spending in developing markets
- Increased technological innovation.
It is also a sector that tends to be less impacted by consumer sentiment in a high inflation environment.
Put this together, and healthcare is an industry that has potential for strong growth in the future. However, given that growth, it is also an industry that tends to come with low dividend yields, which is an issue for income-focused investors.
By combining covered calls with the potential of healthcare stocks, the Harvest Healthcare Leaders Income ETF is able to offer both improved, regular income while still providing exposure to industry growth.
Can this healthcare ETF deliver growth and income?
One of the more interesting investment cases for the ETF comes from the most-followed narrative for this ETF from within the Simply Wall St Community.
The central argument is that investors shouldn't necessarily have to choose between owning established healthcare companies for their long-term growth potential and receiving regular income along the way.
The ETF’s underlying portfolio generates a relatively modest dividend yield. However, by writing covered call options on up to a third of its holdings, the ETF collects additional premiums that help fund its monthly distributions, which carried an annualised yield of approximately 9.39% as at August 2026.
There is also a longer-term growth story behind the portfolio. Ageing populations, rising healthcare spending in developing economies and continued medical innovation could all support demand for healthcare products and services.
Of course, investors still face the trade-offs. Covered calls can limit some potential gains during a strong market rally, while falling healthcare share prices can still hurt the ETF's value. Its distribution is also not guaranteed and shouldn't be confused with an investment return.
Ultimately, the Harvest Healthcare Leaders Income ETF offers an alternative way to combine exposure to healthcare leaders with a strategy designed to generate regular income.
Disclaimer
This article was written independently by the author, without issuer input or approval. Harvest Healthcare Leaders Income ETF (the "Issuer") has a marketing services agreement with Simply Wall St. Details on compensation and other important information can be found in the disclosure and disclaimer at the end of this narrative.
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