Ninepoint HighShares USHI ETF: FULL Breakdown & QA + FIRST Aerospace & Defense INCOME ETF: EDHI

Disclaimer / Context

• Educational/entertainment only; not financial advice.
• Presenters are not registered financial advisors.

Products Discussed (Tickers / Vehicles)

• USHI (Ninepoint “HighShares USHI ETF”)
  • Described as the US version/sister of ECHI with concentrated exposure (about 25 stock holdings mentioned).
• EDHI
  • Ninepoint “HighShares… Aerospace & Defense Income ETF”.
• ECHI
  • Referenced multiple times as the Canadian “sister” product and for performance context.

Key Strategy & Portfolio Construction Framework (USHI / EDHI Approach)

Universe / Stock Selection

• Start with a large-cap US index-style universe (initially S&P 500 referenced).
• Preference for companies that are:
  • widely held / retail-friendly
  • industry leaders with competitive advantages
  • have deep, liquid markets to support covered call writing
• Avoids writing covered calls on companies the team doesn’t view as suitable; conviction matters.

Active Portfolio Management

• Not a fixed, index-style basket:
  • weights are optimized
  • constituents can be added/removed per mandate/prospectus
• Example: SpaceX
  • Not currently in USHI because it hasn’t entered the initial S&P 500-style universe yet.
  • A related product on the TSX is referenced: SXHI (SpaceX-related).

Risk Management / Allocation Methodology

• Uses a Prism risk-based system:
  • optimizes weights
  • assesses sector weights
  • performs scenario stress tests (examples mentioned: rates at 8%, oil at 150)

Covered Call / Income Generation

• Active covered call option strategy.
• Covered calls are written out-of-the-money (OTM), typically:
  • 1%–7% OTM (with an average framing of ~2%–4% OTM)
• Expiration cadence: written every two weeks, with staggered expirations.
• Goal: “capital appreciation income” rather than maximizing option premium at the expense of total return.

Leverage / Capital Structure

• Leverage described with a ceiling up to 33% (with a lower “target” described below).
• Early ECHI leverage was 25%; USHI expected to be similar.
• Leverage can move up/down depending on market pricing and risk needs.
• Intent: maintain flexibility in volatility (example given: Shopify spiked then declined, creating breathing room).

Key Numbers & Explicit Claims (USHI)

Holdings / Concentration

• About 25 stocks.
• Not a rigid fixed number, but “yes…25” was used as a working figure.

Performance Comparison (ECHI)

• ECHI annual indicator: 44.18% as of end of August.
• Compared to TSX / S&P composite about 30%.
• Claimed outperformance: ~1,400 bps over ~1-year period.
• Reminder included: past performance is not an indicator of future returns.

Management Fees

• USHI management fee cited as 0.40 (i.e., 40 bps).
• ECHI noted as 0.29 (29 bps).
• Rationale for fee difference:
  • USHI provides a basket of 25 companies
  • plus a BlackRock/Prism-style lens
  • plus active management
  • versus simply buying individual stocks
• Framing used: “10 bps measured in total return” competitiveness, and “about 40 bps” as broader competitiveness context across providers.

Leverage

• Ceiling: 33%.
• Target range: ~20%–25% (“I’d say it’s 20 to 25”).

Coverage Level (Option-Writing Intensity)

• Clarification: the structure does not imply always writing to extremes.
• Mentioned they write less than “up to 50%” claims by others; referenced financial statements suggesting a mid-range level.
• Conceptual comparison: other funds may write differently (“plus-minus basis points” framing), with the implication that the team’s coverage focuses on tracking underlying + income.

Distribution

• Bi-monthly distributions (every two months).
• Initial distribution stated: $0.0625 per unit every two months
  • described as 12.5 cents per month equivalent
• Initial rate designed conservatively:
  • based on calculations using historical volatility and slippage periods
  • not based on forecasts of specific stocks
• Expectation: aim for distribution stability, though it can change with option premium realizations.

Currency Hedging

• USHI/EDHI discussed as not hedged to CAD.
• Rationale: avoid hedging costs/opportunity cost (forward hedging basis spreads and rate differentials often >1%).
• Disclosed implication: CAD strengthening/weakening can impact returns/distribution in opposite directions.

Key Explicit Examples of Holdings / Instruments Mentioned (USHI)

Examples included:

• Alphabet (Google)
• Tesla
• NVIDIA
• Palantir
• Vistra
• Freeport-McMoRan (copper company referenced; pronunciation corrected)
• Union Pacific
• Eli Lilly
• GE Aerospace
• Celestica
• Shopify
• Shop Apothecary (as mentioned)
• Lockheed Martin / Northrop Grumman / General Dynamics / Raytheon / etc.
  • primarily discussed under EDHI

Other EDHI-specific later holdings mentioned:

• Boeing
• TransDigm
• Rocket Lab
• SpaceX / Starshield
• GE Aerospace (again referenced in that context)
• Palantir (explicitly stated as last added; also a “defense company” debate ~50/50 due to drones/government angle)

EDHI (Aerospace & Defense Income ETF): Key Points & Numbers

Holdings Count

• 11 holdings (confirmed as “11” after initial interviewer thought ~10).
• Palantir described as the most recently added.
• Hesitation whether Palantir is a defense company (~50/50 discussion based on drones/government angle).

Leverage / Call Strategy

• Confirmed: “This is all true” regarding basics.
• Commission/fee mentioned as 0.55 (55 bps) in the interviewer’s question; manager confirmed “good…”.
• Bi-monthly / double distribution (every two months).

Portfolio Thematic Buckets (3-Way Mix)

1. Defensive base (traditional defense primes)
   • Lockheed Martin
   • Northrop Grumman
   • General Dynamics
2. Commercial aerospace
   • Boeing
   • GE Aerospace
   • TransDigm
3. “Profit / future” aerospace tech & space
   • SpaceX
   • Rocket Lab
   • satellite networks / Starshield (referenced via SpaceX)

Sector Concentration / Index Comparison

• Passive aerospace/defense indexes can be overly concentrated.
• Example claim: about 50% in three companies (Raytheon used as an example of a large component).

Initial Allocation / Distribution

• Initial allocation distribution framing repeated as 0.06
  • described as “exactly the same” as earlier numeric reference in the conversation.
• Positioned as income-oriented access to aerospace/defense themes less represented in general tech/mega-cap indexes.

Risk Management & Q&A Highlights (USHI)

Crash Scenario Planning

• Question: what if the market crashes 40%+?
• Response:
  • diversification across names/sectors
  • example given: energy described as sometimes uncorrelated
  • covered call premiums can help offset drawdowns (not a full hedge against a total crash)
  • leverage can be actively reduced during downturns (can go below the max ceiling)

Total Return vs Yield Tradeoff

• Emphasis on net total return over maximizing distribution yield.
• Avoid writing too close to the money.
• Avoid excessive leverage/overwriting that could hurt total return.

Disclosures / Cautions Mentioned

• Tail risk and leverage risk acknowledged; investors should understand leverage and covered call limitations.
• Past performance not predictive (stated explicitly).

Presenters / Sources Mentioned

• Carl Chang (Ninepoint) — primary fund manager/source.
• Adriano (host / interviewer; referenced as content creator/participant).
• Mentions / references:
  • Eric Nuttall (designated portfolio manager; referenced as expertise)
  • Paul and Perry (named as fans of Eric Nuttall)
  • BlackRock-based lens
  • Prism risk management system
  • Other products/ETFs referenced: ECHI, ETCHY, SXHI (SpaceX-related on TSX)