Hamilton Healthcare Yield Maximizer ETF (LMAX): Is This 13.31% Yield Sustainable in a Volatile Market?

In an era of persistent market uncertainty, investors are increasingly drawn to strategies that promise both income and resilience. The Hamilton Healthcare Yield Maximizer ETF (LMAX) has emerged as a standout, offering a headline-grabbing annualized yield of 13.31% as of July 2025. Yet, as with any high-yielding vehicle, the critical question remains: Is this yield sustainable in a volatile market? To answer this, we must dissect LMAX's dual pillars—its covered call strategy and its healthcare sector exposure—and assess how these components interact with macroeconomic headwinds.

The Covered Call Conundrum: Income vs. Upside Sacrifice

LMAX's approach hinges on a 30% covered call overlay, where options are sold against a portion of its holdings to generate premium income. This strategy is designed to enhance yield while preserving 70% of the portfolio's equity upside. The logic is sound in theory: by harvesting option premiums, the ETF can boost returns without significantly capping gains. However, the real test lies in its performance during market downturns.

Historical precedents, such as the 2008 financial crisis and the 2020 pandemic crash, reveal a critical flaw in covered call strategies. During these periods, the income from options often fails to offset sharp declines in the underlying equities. For instance, the Invesco S&P 500 BuyWrite ETF (PBP), a similar product, underperformed a traditional 60/40 portfolio by a staggering margin over 15 years, with a final balance of $186,000 versus $853,000.

LMAX's semi-annual rebalancing and equal-weight structure (20 large-cap healthcare stocks) aim to mitigate this risk. By spreading exposure across pharmaceuticals, biotech, and medical devices, the ETF reduces overconcentration in any single name. Yet, the covered call strategy remains a double-edged sword. While it cushions against short-term volatility, it also limits participation in market rallies. For example, during the 2020-2022 recovery, tech-heavy covered call ETFs like QYLD underperformed due to their capped upside.

Healthcare as a Sector: Resilience and Risks

The healthcare sector's intrinsic resilience is a key differentiator for LMAX. Unlike cyclical industries, healthcare demand remains relatively stable even during economic downturns. LMAX's portfolio includes blue-chip names like Johnson & Johnson (JNJ), UnitedHealth Group (UNH), and Eli Lilly (LLY), which are less susceptible to macroeconomic shocks.

However, this resilience is not absolute. For instance, during the 2020 pandemic, healthcare stocks faced regulatory and cost pressures. While LMAX's equal-weight structure avoided overexposure to any single stock, it also meant that gains from outperformers like Thermo Fisher Scientific (TMO) were diluted. Moreover, the sector's reliance on innovation cycles introduces volatility. A misstep by a key player—such as a failed drug trial or regulatory setback—can ripple through the portfolio.

Yield Sustainability: A Balancing Act

LMAX's 13.31% yield is a combination of dividend income from its holdings and option premiums. The latter is particularly sensitive to market conditions. During periods of low volatility, option premiums may shrink, reducing the ETF's ability to maintain its high yield. Conversely, in high-volatility environments, the premiums could rise, but the underlying equities might decline, creating a trade-off.

The ETF's management team, with over 50 years of combined options trading experience, aims to navigate this balance. However, the strategy's reliance on a fixed 30% coverage ratio may limit flexibility. For example, during a prolonged bear market, the team could theoretically increase the call coverage to boost income, but this would further cap upside potential.

Lessons from the Past: Volatility as a Stress Test

To evaluate LMAX's historical resilience, we turn to its performance during the 2008 and 2020 downturns. While the ETF's inception date (February 2024) means it lacks data from these periods, backtesting similar strategies provides insights. The Global X NASDAQ 100 Covered Call ETF (QYLD), for instance, underperformed the NASDAQ 100 during the 2020-2022 bear market. This suggests that covered call strategies may struggle during prolonged downturns unless the underlying sector is inherently defensive.

LMAX's healthcare focus offers a counterpoint. The sector's stability could help offset the limitations of the covered call strategy. Yet, the ETF's year-to-date total return of -4.48% as of June 2025 indicates that even a defensive sector is not immune to market-wide pressures.

Investment Implications: Who Should Consider LMAX?

LMAX is best suited for income-focused investors seeking regular distributions in a sector with relatively stable fundamentals. Its 0.65% management fee is reasonable for an actively managed ETF, and the monthly distributions (averaging $0.15 per unit) appeal to retirees or those prioritizing cash flow.

However, long-term growth investors should proceed with caution. The covered call strategy's capping of upside potential may hinder capital appreciation during market recoveries. For example, if the healthcare sector rebounds sharply, LMAX's 30% call coverage could limit its ability to participate fully.

The Path Forward: Navigating the Trade-Offs

To sustain its 13.31% yield, LMAX must balance three key factors:
1. Volatility Management: The covered call strategy must adapt to shifting market conditions without overly restricting equity upside.
2. Portfolio Resilience: The equal-weight structure and sector diversity should continue to insulate the ETF from individual stock risks.
3. Yield Stability: The income stream must remain consistent, even as macroeconomic pressures (e.g., interest rate hikes) impact option premiums and dividend yields.

In conclusion, LMAX represents a compelling option for investors seeking high yield in a defensive sector. However, its success hinges on the interplay between the covered call strategy's income generation and the healthcare sector's inherent resilience. While the 13.31% yield is achievable in the current environment, its sustainability will depend on the ETF's ability to adapt to evolving market dynamics—a challenge that tests the mettle of even the most seasoned strategies.