What comes after easy yield in equity markets

Strong equity performance has made income generation look deceptively simple in recent years. When markets move steadily higher, dividends grow and covered calls are written into rising prices, yield tends to follow. That dynamic is beginning to change. Many advisors are now positioning portfolios for a stretch marked by uneven returns, periodic drawdowns and greater valuation sensitivity.

Chris Heakes says those shifting conditions are reshaping conversations with advisors. The senior portfolio manager at Harvest Portfolios notes that demand for income remains firmly in place, but the emphasis has moved toward how that income is generated and how portfolios behave when markets are no longer moving in one direction.

Those discussions helped shape the firm’s new premium yield ETF lineup. The new strategies, including the Harvest Premium Yield Canadian Bank ETF (HPYB) and the globally diversified Harvest Premium Yield Enhanced ETF (HPYE), combine core equity exposure with covered calls and put-selling in a single structure. Both use moderate leverage and active option writing with the aim of generating high, tax-efficient income alongside equity growth, and both pay semi-monthly cash distributions designed to provide a steadier flow of portfolio income.

Heakes outlines how the structure is intended to function across different market environments, why Canadian banks were chosen as the starting point and how advisors can use these strategies as portfolio building blocks rather than stand-alone yield tools.

When markets stop moving in straight lines

Advisors are still being asked to deliver reliable income, but markets are unlikely to cooperate in a straight line. That reality pushed Harvest to design an equity income structure that does not depend on sustained rallies or precise timing calls.

“In 2026, the conversation isn’t just about generating income,” he says. “It’s about generating income while managing risk in a more thoughtful and efficient way.”

Each premium yield ETF incorporates three components: an underlying equity portfolio, a covered call overlay and a put-selling program. Together, they create multiple sources of income while building a systematic approach to adding or trimming equity exposure as conditions shift.

In flat markets, option premiums from calls and puts can become a primary contributor to returns while the underlying equities continue to generate dividends. During pullbacks, the put-selling component allows the portfolio to collect income while preparing to purchase equities at lower levels if they decline through preset strike prices. In rising markets, covered calls and puts still generate premium, while exercised calls can lead to trimming appreciated positions and redeploying capital.

Heakes frames the structure as a way of embedding discipline directly into the portfolio. “You’re earning income in markets where nothing really happens,” he says. “If markets go down, the portfolio is set up to be a little defensive initially, but then we’re going to buy stocks at better prices through the puts.”

Why elevated bank valuations make the timing relevant

Harvest chose Canadian banks as the foundation for the first premium yield ETF in the lineup, applying the structure first through HPYB. The rationale begins with the underlying exposure. Canadian banks have historically delivered strong total returns and consistent dividend growth without meaningfully higher risk than the broader market, making them a familiar anchor for income-oriented portfolios.

“You want to like your underlying exposure first and foremost,” Heakes says. “Canadian banks have a tremendous track record of market-beating returns and really solid dividends.”

The sector is also coming off a notably strong year. Canadian bank stocks gained roughly 40% in 2025, far outpacing many global peers and contributing to one of the stronger years for Canadian equities overall.

With bank shares trading higher, Heakes says, selling puts allows the portfolio to generate income while setting potential purchase points below current levels. If prices remain firm or continue rising, the strategy collects premium and dividends. If they pull back, previously sold puts can result in acquiring shares at more attractive valuations.

Heakes is careful to frame expectations. A severe downturn would still weigh on any bank-focused strategy, while a sharp rally could see covered calls limit participation in the full upside. The objective is to deliver a steadier income stream and a more measured exposure to equity markets across a full cycle.

Alongside the bank-focused ETF, Harvest introduced a globally diversified premium yield strategy built around a concentrated portfolio of large-cap companies across sectors. Designed as a core equity income allocation, HPYE can sit alongside existing broad-market exposure while increasing portfolio income and moderating volatility.

Where premium yield fits in modern portfolios

A key question for advisors is how these strategies fit within broader portfolios. Heakes suggests viewing them within the equity or hybrid income sleeve rather than as fixed income substitutes. With exposure to equities, options and moderate leverage, the risk profile typically sits between traditional equities and higher-yielding income assets such as preferred shares or high-yield credit.

Semi-monthly distributions add another layer of flexibility. More frequent payments can better align with ongoing expenses for clients drawing income, while remaining fully eligible for reinvestment for those in accumulation. Heakes sees applications across both phases.

“A classic use case would be a retiree who needs to generate more than fixed income provides,” he says. “But it can also work for investors with longer horizons who want equity exposure with additional income and a bit more structure around how that exposure is built.”