Maximize Your Income: Covered Call Strategies for Volatile Markets with Catherine Howse and Jeff Cullen

In a world where traditional income sources fall short and market volatility threatens portfolio stability, finding the sweet spot between yield and growth becomes increasingly challenging. Enter Cullen Capital's Enhanced Equity Income Strategy (DIVP), a thoughtfully constructed approach that's been delivering consistent results for over 14 years.

Unlike many covered call strategies that sacrifice upside potential for current income, DIVP takes a more selective approach. By writing options on just 25-40% of portfolio holdings, the strategy maintains meaningful exposure to market upside while generating a target yield of 7% or higher. Half of this yield comes from dividends paid by high-quality value stocks, with the remainder from option premiums – creating a more tax-efficient income stream than strategies relying solely on options.

The portfolio consists of approximately 30-35 carefully selected large-cap value companies across all eleven market sectors, each chosen for their strong fundamentals, dividend growth potential, and attractive valuations. Trading at just 13x forward earnings, these companies offer both current income and growth potential that many pure fixed-income alternatives simply cannot match.

Perhaps most compelling is the strategy's historical ability to protect capital while delivering income. A hypothetical $1 million investment at inception with 5% annual withdrawals would have provided $856,000 in cumulative income while growing to $1.3 million over 14 years – demonstrating that income generation doesn't have to come at the expense of principal.

With recent market volatility highlighting the vulnerabilities of growth-heavy portfolios, DIVP's value-oriented approach has demonstrated resilience, outperforming many technology-focused covered call strategies. As investors reassess their income needs in an uncertain market environment, consider how this balanced approach to income generation might enhance your portfolio's yield while maintaining potential for long-term growth.

DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Cullen Capital and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own

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Episode Transcript

Speaker 1 (00:00):
My name is Michael Guyad.
I appreciate everybody joiningthis webinar sponsored by Cullen
Capital Management, schaeferCullen.
I want to hand this off to MrJeff Cullen and then, of course,
kathy Howes as far as yourbackground, and we'll get right
into it.
So, jeff, go ahead.

Speaker 2 (00:13):
Thanks, michael, it's always good to spend time with
you and we appreciate theability to kind of bring our
message to people who willfollow you and then like what
you have to say.
So, by way of background, myname is Jeff Cullen.
I work at Schaefer CullenCapital.
We're also known as CullenCapital.
We have SMAs and mutual funds.
What we're here to talk to youabout today is actually our ETF

(00:33):
version.
We launched our first ETF, likemany other firms.
The ETF we launched that we'regoing to get into is actually
based on a $1.8 billion strategythat exists, so it's a lot of
assets in the program already.
A $1.8 billion strategy thatexists, so it's a lot of assets
in the program already.
There's some nuances to it thatthe minimums for SMA access
tend to be a little higher.
So we've had a lot of advisorsbasically ask us to make an ETF

(00:54):
version of it.
It's much easier for them toimplement smaller positions in
their book or their IRA accounts, whatever it might be the
models that they run.
So we did that.
We just crossed a one-yeartrack record and we're going to
get into all that throughout therest of the day.
With that, I'll just turn itover to Kathy.
Let her give a quickintroduction and then we'll give
a little background on Cullen.

Speaker 3 (01:12):
Thanks, jeff.
Hi everyone, I'm Kathy House.
I've been with Schaefer Cullenfor the past 19 years, based in
Los Angeles, and work as aportfolio specialist.
Like Jeff said, we're excitedto be unpacking our dynamic
covered call ETF DIVP today, solet's jump into it.

Speaker 2 (01:30):
So a little bit about Schaefer Cullen, just to start.
Look, we're an employee firm.
We're actually celebrating our40th year in the business.
So, for those who haven'teither heard of us before or
heard of Schaefer Cullen orCullen Capital, we've been in
the business for 40 years.
We primarily do separatelymanaged accounts.
We do have a mutual fund lineupon very strong performing
mutual funds.
We're based in New YorkPrimarily.

(01:51):
Everyone's based in New York.
Obviously, we have sales andmarketing and portfolio
specialists that are locatedthroughout the United States.
We have $24 billion in assets,or just under $24 billion in
assets In this portfolio.
I mentioned the strategy.
We have $1.8 billion.
So it's been one of our fastestgrowing strategies in both the
SMA side, and we're starting tosee some nice traction in our
ETF that we're going to talkabout.

(02:12):
But this is a quick look at theinvestment team.
They've been doing this for along period of time.
A lot of people have been inthe industry, as you can see,
for a long period of time.
The average tenure of ourportfolio managers is 34 years.
So, again, we only do one kindof style of investing.
For us, we do value investingwith a focus on dividends, so we
offer various versions of that,us international emerging

(02:33):
markets, et cetera.
This particular strategy we'regoing to talk about today is
covered call writing on thoseindividual stocks, but that is a
view of our company overall.
We just do equities.
We don't do fixed income cash,so we just focus and we're a
boutique and we're more as wellknown as a specialist in the
value dividend space.

Speaker 3 (03:00):
So I think it's helpful to also kind of address
that this kind of corner of themarket has been one that has
seen a lot of growth in the lastfew years.
So if you go back to 2019, thepeer group that exists, which is
derivative income, had justgotten broken out by Morningstar
so its own separate peer groupof funds, etfs, managed accounts
and at that time there wasabout $20 billion worth of AUM
in derivative income.

(03:20):
In the last five years you'veseen that grow sixfold to where
at the end of last year it satat around $140 billion.
There have been some bigplayers in that space.
We can certainly talk aboutsome of the differences between
us and them today also, but atthe same time there were some
macro trends kind of forcing thehand of investors to find

(03:41):
income in different ways.
I mean, we think back then, youknow, bonds weren't exactly
paying a whole lot of money.
Demographics have also justbeen very concentrated, where
you have baby boomers that havebeen entering retirement or at
retirement really needing tofind higher sources of income.
So derivative income, usingoptions to enhance yield, is one

(04:04):
way to do it, and so you know,when we think about our
portfolio, we have a couple ofcharacteristics that really set
us apart from the rest of thatpeer group.
First of all, we have a veryclear stated objective of what
we are trying to achieve.
So for us in DivP, we're tryingto generate a yield of 7% or

(04:25):
higher.
Half of that is coming fromdividends and the other half of
it is coming from the coveredcall premiums.
We also take a more selectiveapproach to writing calls on our
portfolio companies.
We have a clear, stated rangeof what that coverage looks like
.
At the minimum end it's 25% andthe maximum side of it is about

(04:46):
40%.
So it's a more individualapproach looking at the stocks
in our portfolio and making adecision what looks to be the
best candidates to be writingcalls against.
And then, third, our objectiveis to also protect that
principle, protect the capitaland have a strong level of
downside protection.
In some of that derivativeincome peer group you're going

(05:09):
to find strategies that just useoptions for hedging purposes.
That's not what we're trying todo.
But we want to have a goodquality portfolio that can take
the impact of a volatile marketand offer a level of downside
protection but really hold on tothat principle, to where you
can generate current income andalso see some moderate growth
from the underlying stocks aswell.

(05:29):
So that's the approach we take.
There are some, again, dynamicfeatures there, whether it be
the fact that we are one of thehighest allocators to large cap
value within that peer group andthat that dividend is a really
key component of our stockpicking approach.
This slide, though, I thinkexemplifies really the best

(05:50):
value add that we provide forclients, which is a consistency
of the income.
And again, when we look atother types of ETFs out there,
there have been a lot more broadindex approaches or using
index-based options, which arejust based on the volatility of
an index.
For us, we look at thecandidates of our portfolio

(06:10):
stocks that we can use and havea lot more flexibility to kind
of work around the portfolio.
So this slide, what it shows,is the track record of income
based on our managed account,which goes back to 2010.
So 14 years of history here, alot of different dynamics thrown
at us over that time period aswell, but a consistent income

(06:30):
track record.
So the blue piece of the barhere is the dividend component,
and the gold piece you'll see isthe premium income component
reaching that 7% yield, in somecases even exceeding it or going
over 8% yield, in some caseseven exceeding it or going over
8%.
On average, though, over thistime period we've generated 7.6

(06:51):
in total income.
So our goal is to again aim forconsistency, have that clear 7%
target and meet or exceed iteach year.
Now to take kind of a sidestep.
For those that maybe need arefresher maybe it's been a
while since you cracked openthat series seven textbook and
looked at covered calls it canbe helpful to just kind of

(07:13):
re-explain how covered callswork.
So a call option let's startthere that's a contract between
a buyer and a seller where abuyer can buy stock from a
seller at a preset price we callthat a strike price on or a
specific date, we call that anexpiration date and the buyer
pays the seller the cost of thatcontract, which is a premium.

(07:34):
That's what the seller receives.
In a covered call, the firstthing you do is you own the
underlying securities and inorder to sell one contract you
must have at least 100 shares.
So the example we have here onthe screen is a stock XYZ that
costs $100.
And let's say we have 100shares of it today.

(07:54):
That would be a $10,000position in our portfolio.
As the seller, we can sell thecall at a strike price.
Let's say the price is $105 andthe expiration date is one
month from now and the price ofthis contract is $1 per share.
So when we open the contract wehave a price that we're willing

(08:14):
to sell it at and we receivethat $1 per share or $100 up
front.
Right now, if the stock pricerises above the strike price,
our buyer is likely going toexercise their right to it.
We must sell it at the agreedupon strike price, which is 105.
So that's one outcome that canoccur, and that's really the
risk that we take when we sellcalls is that they go above the

(08:37):
strike price.
The other outcome would be thatthe stock moves sideways and
doesn't hit 105.
Buyer never exercises theirright.
We've retained.
The stock moves sideways anddoesn't hit 105.
Buyer never exercises theirright.
We've retained the stock andwe've received that premium.
And then a third outcome couldbe that the stock price goes
down and we've again receivedthat premium.
But that premium has alsohelped offset a little bit of

(08:59):
the loss against the fallingstock price.
So these are the three outcomesthat can occur.
What we're trying to achieve byselling covered calls is looking
for opportunities where thatpremium income is attractive.
So to us it's worth it toexpose the stock and potentially
get assigned in it, but also bereally specific about what

(09:20):
companies we pick and chooseeach month to sell calls against
and to sell those calls out ofthe money or above the current
price of the stock and in thehope that they do not get
assigned.
So let's move on and take aquick look at our portfolio here
and we'll give you kind of aflavor of the underlying
companies, and Jeff is going tounpack more of the option

(09:40):
writing piece here in just asecond.
We have 33 stocks in ourportfolio today so we do a lot
of upfront due diligence andresearch on individual companies
to find what we believe aresome of the best stocks out
there.
They fall into kind of more ofthe defensive areas.
If we take a quick look at theright side of this chart, you'll
see that our highestallocations right now on a

(10:01):
sector level are to staples, tofinancials, then healthcare.
We are relatively underweight,both the Russell 1000 value and
the S&P 500 in technology, butwe are well diversified across
all 11 sectors.
Also, you'll take a look at thestocks here likely recognize
these to be quality blue chipnames, large cap, value-oriented

(10:26):
companies.
There's a lot of differentcatalysts that we're looking for
when we're trying to findcompanies, but a couple of them
is to find good, strong earningsgrowth over the next three to
five years and a growingdividend as well.
So let me look at an examplehere of a company that we've
held in the portfolio for acouple years Citigroup.

(10:46):
As you may know, you know JaneFrazier stepped in to take over
Citigroup in 2021.
You know she had very you knowa really clear idea of how she
wanted to turn things aroundthere, but I think the key is is
that the stock went through abit of a decline in 2022, down
25%.

(11:07):
There were some skeptics aroundher ability in the early stages
of it.
The price of the stock got verycheap, trading around six times
half a book value, and then, asthings began to turn and she
being very clear about upgradingtechnology, cutting costs,
focusing on the more revenueparts of the company, like the

(11:30):
institutional banking and wealthmanagement size, began to see a
gain 14% growth of the stockprice in 2023.
The company went through, asall banks did, the regional
banking crisis, where a lot ofthe regional banks.
A lot of that money driftedinto kind of more of these more
established, larger cap banks.
You saw the multiple rise andthen last year more even

(11:53):
significant growth of the stockprice you know, 38%.
A lot of that happening alsotowards the end of the year.
As you know, trump got intooffice of the year.
As Trump got into office or waselected back into office, and
the ideas going forward aboutderegulation in his
administration, more M&Aactivity, easier capital markets

(12:14):
, and so there's been a lot ofgreat growth in the stock.
It's a company that we've heldonto, but it also, I think,
exemplifies that we take alonger term approach when we're
picking and holding stocks.
In the meantime, we've beenwriting on Citigroup over these
three years as well to be ableto collect additional income off
of the stock.
So another example I thinkthat's probably something that

(12:38):
when you think about tech and AIand all the boom, johnson
Controls is not one that isprobably first in your mind, but
I think you'll probably relateto the story here.
So Johnson Controls is a leaderin HVAC systems and we have
this explosive growth happeningin the construction of data
centers globally With that.

(12:58):
You know Johnson Controls is aleader in those air cooling
systems that are essential tothese data centers.
So we've seen a lot of growthin the company.
Five-year total return up 136%.
We bought the stock many yearsago, traded it 10 times, was
right in our spotlight for whatwe like as value-oriented

(13:21):
companies nice dividend yield.
We've seen the multiple rise.
Again, it's a company that we'vebeen able to strategically
write on during this period aswell, but it's one that I think
has that sort of indirect playto AI, whereas in a growth
portfolio you're going to getmore of the direct companies to
have Amazon's, apple's, google's, nvidia's, et cetera.

(13:44):
But for a value manager, this ishow we can play that space
still in a dynamic way andbenefit from all of the
catalysts and growths that arehappening in both AI and in
cloud computing.
So that's just give you alittle bit of flavor to how we
think, how we're looking forgood stories out there in our
portfolio, and I'll hand itactually back over to Jeff to

(14:08):
kind of go into the option piecehere.
Maybe I guess a quick pointhere on just the overall
portfolio Still today tradescheaply, 13 times forward
earnings, significant discountto the broad market, strong
dividend yield component 4.4%and these companies have a track
record of growing their incomeacross the portfolio year to

(14:29):
year.
We've raised, or we've seen thecompanies raise dividends about
70% of the portfolio, increaseby 7%.
So back to you, jeff.

Speaker 2 (14:36):
Thanks, kathy, nice job.
One thing I did want to mentionyou can see on the title slide
of this presentation the actualname of the product.
So the strategy we're actuallytalking to you about today, it's
called the Enhanced EquityIncome Strategy.
We offer it in separatelymanaged account that Kathy
mentioned and we also offer itin an ETF.
Share classes is what wehighlighted initially.

(14:57):
I know that Michael and Kathykind of glossed over the ticker,
but the ticker is DIVP.
We call it DIVP.
It's DIV for dividends and Pfor premium income.
So that's why we sort of referto it quickly as DIVP.
Divp is the ETF ticker for thisstrategy in ETF form, one of

(15:18):
the things I just want tohighlight in this slide.
Actually, kathy touched on it.
Keep in mind, if we're justlooking for yield, we'd wind up
being just in communicationservices.
We'd just be in utilities andmaybe some energy names.
But because we want to havedividend growth and we want that
dividend growth to come fromearnings growth, this is where
we can get good growth in theportfolio over time.
So the dividend yield, theunderlying dividend yield, which

(15:40):
you can see right now, is 4.4%.
So how to think about this iswhat we're showing on this slide
is that the dividend yield inthe SMA on December 31st 2024 is
showing at 7.3% 4.4 fromdividends and 3% from options
premium.
On that 4.4 dividend yield it'svery, very consistent for us.

(16:02):
We're going to refer back tothat slide later on today on
yield, but you're going to seethat that dividend yield has
been very, very consistent forus.
But on top of that, if you ownthe strategy over time, you have
this compounding effect ofdividend growth which Kathy
highlighted below.
So you can see these numbers Onaverage we're getting about 60%
to 70% of our portfolioholdings are increasing their

(16:22):
dividends, with that averageincrease being 7.1% over time.
So it's that compounding effectwhich really can drive some
nice yield in this portfolioover time.
How does the options work?
So again, kathy kind of wentover it at a very quick and a
high level.
But the way it works is we havea portfolio management team who
picks the underlying securities.
They're buying them for ourprinciples, which are low PE

(16:46):
style investing.
We want everything to have adividend yield and then we also
want the company to havedividend growth tied to earnings
growth Once those 30 to 40stocks are picked.
Right now, presently, theirportfolio has 32 names in it.
Those 32 stocks are handed overto the options principle, whose
job it is to look at those 32stocks.
And, as Kathy mentioned, we arerepresented in all 11 sectors,

(17:08):
which is sort of importantbecause we're looking for
volatility in any one sector,right.
So today is a good example.
Today, healthcare is up andtechnology is down.
That volatility that is createdthrough the Trump
administration has allowed forus to actually get very, very
strong, good options.
Premium Volatility is our friendin these kind of strategies.
So once the option portfoliomanager has those holdings, he's

(17:29):
going to look through and findout where he can get good
options premiums.
What we're writing on here iswe're writing short-term options
between two weeks and one month.
We're writing the optionsalways out of the money,
somewhere between two and 4%it's going to vary on the sector
, it's going to vary in theactual security and we're

(17:50):
writing on about 25% to 40%.
On average it's 33%.
So if I had to give you an ideaof the portfolio, at any point
in time inside the month, we'regoing to own somewhere around 31
to 34 names.
We're going to write on about athird of the portfolio and
we're going to be writing shortterm out of the money options

(18:11):
and we're just going to repeatthat process over and over again
.
Kathy mentioned that we havewritten a lot on Citibank.
We have done that as Trump'srally the Trump rally for
financials kind of happened inthe fourth quarter and after he
was elected, and now we'regetting some pullback even today
on financials with theinflation number that came out.
So you have this volatilitysuper helpful for us to get good
options premium.
At the same time, as long ascompany earnings are there and

(18:34):
that's what we spend a lot ofour time on, they're going to
increase those dividends overtime as those earnings are there
.
So that's what we look for is atwo-part prong to that.
There's a lot of activity onhere.
As you can see.
We're writing a lot of optionsthroughout the year.
The average out-of-the-moneyoption you can see here online
in 2024 all the way to 2022, itchanges.
It can vary based upon currenteconomic environment, current

(18:57):
positions that we're writing on.
That's why it's sort ofimportant that we have all 11
sectors of the S&P covered withholdings.
We have all 11 sectors of theS&P covered with holdings
Because if we just wrote on, say, financials and energy in order
to get the options premium, wecould wind up losing any energy,
writing a lot of energypositions, and if there's a
flare up in the Middle East, wewind up getting called away on a
lot of our energy positions andthen we don't have that.

(19:18):
One of the nice things I reallylike what our portfolio
managers do is they won't writean option on a company that's
going to be paying a dividendBecause, remember, we want to
generate income, so we're goingto wait, capture that dividend
inside the portfolio and thenwe'll write on that particular
position if we wish to.
And because we pick the stocksfirst because we think they're
going to appreciate in price, alot of times our portfolio

(19:41):
managers will write halfpositions.
So instead of exposing thewhole position of, say, xyz
stock, they're only going towrite on half the position.
So if there's a good earningsannouncement or something
happens on a takeover case orsome kind of news drives that
stock price that we weren'texpecting, we maybe only are
going to be called away on halfthe position where the other
half position could participatein upside appreciation for you

(20:03):
and your clients.
So that's how we do the optionsoverlay.
It's very methodical, it's verystructured.
You can see on the left bulletpoint.
Here we basically look at allthe coverage that we have and
we're looking for certainthresholds in order to be
willing to write an option andhave a stock called away.
So we have internal thresholdson return levels that we need to
hit in order for us to exposethat stock.

(20:26):
And that's again also, I think,an important characteristic of
an active management on theoptions part as well as active
management on the underlyingsecurities.
Because if you're just runningon the index, you're beholden to
whatever happens in themarketplace and the spreads that
the market's willing to giveyou on index options.
By having the ability for us todo it inside the individual

(20:46):
positions that we own, it givesus a lot of flexibility Write
half positions, write fullpositions, write 2% out of the
money, write 4% out of the money, do it for two weeks, do it for
one month.
That added ability to haveactive management allows us to
have that consistent income anddo that over time.
We just repeat that processeach and every month, and we've
done that for the last 14 years.
So, kathy, I'll turn it back toyou here to just give a quick

(21:09):
once over of some of thediagrams that advisors who own
this $1.8 billion strategy haveasked us to run for them and
kind of provide for them.

Speaker 3 (21:18):
Yeah.
So if we're generating this 7%yield, or if any covered call
strategy ETF out there is, youknow, publishing a high
distribution rate, one of thethings you want to be looking at
is you know what did the?
How does the total returns look, as well as that distribution
rate?
One of the things you want tobe looking at is you know what
did the?
How does the total returns look, as well as that distribution
rate, the income rate.
The worst thing that can happenis that these funds be

(21:41):
publishing a super high yieldand if you were to actually take
it that, you would be justdeteriorating the principle over
time.
So, as Jeff said, you knowwe're very thoughtful in the way
that we've built the portfolioand the yield that we have
stated so that we can achieve anobjective of being able to
provide the current income, aswell as the stability of that

(22:01):
principle and even growth overtime.
So what this study shows ishypothetical examples of
withdrawing 3%, 5% or 7% andincluding a hypothetical 1% fee
on that investment as well, andwhat is the effect of it.
So let's just take a look atthe red bar in the middle there.

(22:24):
That is a 5% drawdown thatmight be indicative of you know,
like someone's RMD, so it's agood example here.
So if you had started atinception with us 2010 with a
million dollars and you weretaking out 5% each year and
there was a fee deducted of 1%at the end of the year, over
this 14 year period you wouldhave withdrawn a total of five

(22:48):
I'm sorry $856,000 of income inthat portfolio.
Would have still been able toappreciate 30% to go from $1
million in the beginning to $1.3million at the end.
So again, the 5% is taking aportion of the 7% that we're
targeting.
And then you had thatadditional 2% of income that was

(23:12):
then reinvested back into theportfolio in companies that are
also growing the income overtime, and so that's where that
appreciation has come from.
Same thing in 7%.
If you were to draw down thefull income, 7% started with a
million took out over a milliondollars of income.
Even You're seeing thestability of that principle 14

(23:32):
years later, just shy of the $1million starting value.
So that's the goal.
We see a lot of people that wantto take current income we allow
for it and they also still maywant to be able to pass this
account on to a spouse or anheir without it being
deteriorated over time.
The alternative is maybe youdon't need income right now, but
you're building out a plan sothat you have it available for

(23:53):
when you do need to take thatincome out and in the meantime,
all that income is going to bereinvested back into the
portfolio.
So this is a yield at costslide.
It shows the reinvestment ofthat income.
Same scenario starting in 2010with a million dollars and
reinvesting back each year towhere your starting yield was
around 8% and now, 14 yearslater, the yield on that

(24:17):
original million dollars is 20%.
So that's significant incomegrowth over time.
So we look at this really as aproduct that can offer both the
stability of the cash flow to beable to take it currently, not
deteriorate the portfolio, butalso build wealth over time.

Speaker 2 (24:35):
So the big question always becomes how are we doing
and how's it performing?
This is a quick look at twoscenarios here.
People are asking how's it heldup during this market since the
peak of the market on February19th, and also how's it done
year to date.
They want of want to get a feelof how it's doing versus some
of the broad indices.
Now there's not an index thatexists that is a value index,

(24:58):
that invests in dividends, thatwrites covered calls.
There's not one that exists,the only one that we are
familiar with that we have toput on our prospectus and
everything is an S&P buy-writeindex.
It's called the BXM.
What that does is it basicallybuy-write index?
It's called the BXM.
What that does is it basicallyit's owning the S&P 500 and
doing buy-writes on the actualindex at 100%.
So more index writing thanactually that we do.

(25:19):
We're also showing the S&P 500.
And because we're a valueinvestor, many times we'll also
show the Russell 1000 value.
The S&P is a much differentcategory, weightings and sectors
than the Russell 1000 value.
So we are fishing in that pondfor new ideas and the portfolio
from a sector allocation looksmore in line with the Russell

(25:40):
1000 value than not, even thougheverything pays a dividend and
we tend to be mega cap orientedcompanies and we also threw in
the junk bond index.
Many times we are told fromadvisors that they think of our
ETF and our covered callstrategy here in that sort of
same vein.
It's equity-like returns.
I want to complement the fixedincome that I have inside the
portfolio today.

(26:01):
So many times we're asked tosay well, how do we look versus
the JNK?
This is a quick look at howwe've done since the market peak
.
This is through last Friday.
It's when we made thisPowerPoint presentation.
You can see, obviously thestrategy has been holding up
very well since the peak.
There's been a strong pullbackin the S&P at this point times
down 7.6.
It's as of this podcast whereit's actually down pretty strong

(26:25):
today as well.
But you can see ouryear-to-date numbers have held
up as the market has sort ofturned and gone in the way of a
little bit more conservative.
Equity Healthcare has kind ofstarted to perform.
It's doing very well todaywhich we own as well as
utilities and some of the energynames that we have inside the
portfolio.
So this is just a quick look togive you an idea of what is out

(26:46):
there.
As I mentioned, the strategy isKathy mentioned.
The strategy is 14 years old.
This is a little bit of a busyslide.
We have this information foranyone who would like to email
us afterward to get it, but youcan see the longer term track
record since inception We'veaveraged about 9% plus Higher
than that, the index, way higherthan that, and then the junk
bond index and as well astrailing the Russell 1000 value,

(27:09):
which sort of makes sense to us.
This has been a sort of upmarket since inception in 2010.
The Russell 1000 value hasperformed well with the mid and
small caps, the areas of themarket that we don't participate
in this portfolio.
So we feel very good on thetrack record.
If you look at the downsidecapture, we often are asked how
do you perform in some of thedown years?
If you look here, I'm not sureif you can see my mouse moving

(27:30):
here, but in 2022, some of thedown years If you look here, I'm
not sure if you can see mymouse moving here, but in year
2022, you can see when themarket was down, russell was
down seven, the S&P was down.
Our strategy at the SMA levelwas actually up that year.
So we're seeing indicativenature of that this year kind of
playing out and a little bitlater on we're going to compare
it to a couple of the other ETFsthat exist in the covered call
space to give you a flavor forthat, because we think they've

(27:52):
done a wonderful job.
We focus on the value side ofthat equation and many
oftentimes think we're a companyof other covered call ETFs that
exist.
But we want to walk throughalso a quick view of the
environment and what we see andwhat we're seeing from our
portfolio management eyes.
Look, it's a sector performanceturn.
You're seeing again todaytechnology and discretionary

(28:14):
sort of names, and when we saydiscretionary and technology,
you can even lump in somecommunication services the
Googles and the Metas of theworld that have been moved over
to the communication servicessectors.
They are having a tough go anda lot of it is a retrapment of
the PE multiple expansion thatexisted.
The S&P, obviously, aseveryone's talked about the

(28:34):
large weighting that you have inthe MAG-7, which we'll
highlight here as well but whenyou look at a sector perspective
, there's really been a strongturn in that healthcare movement
to healthcare staples.
Real estate, energy,dividend-paying value-oriented
companies has been pretty solidthis year and we're seeing a
continuum play out in today'spullback.

Speaker 3 (28:54):
Yeah, jeff, I think that the average investor I mean
we're all getting thrown.
You know it's like a newheadline every single day,
something else that there'suncertainty around, and so I
think you're obviously seeingsentiment shift.
You're seeing people sort ofshift their behaviors, you know,
take some profit from theirportfolios that they've
experienced over the last coupleof years, with, you know, being

(29:15):
exposed to the Mag7 and techand you know a lot of great
stories there.
But this market, you know,coming into 2025, I think you
know a lot of people had somepretty high expectations also on
the way the S&P was going to gothis year.
You know we were on withMichael at the beginning of the
year kind of talking about thatand talking about what sector

(29:38):
some of these strategists hadfavored and what the outlooks
were, and I think it's really,you know, maybe surprised some
people at just sort of the turnsthat we've experienced here in
February and March experiencehere in February and March, and
so you know it, I think reallysets our portfolio up to be
having this discussion and to betalking about ways to find, you

(29:59):
know, maybe a more consistentapproach to generating yield and
having, you know, exposure toother parts of the market.
So you know also Goldman Sachs,I think they came out with an
article I want to say it wassometime last year a white paper
that sort of shocked a lot ofpeople because they were talking
about a projection of forwardreturns for the next decade

(30:20):
being around 3%.
This is the study that theyfeatured in that article and
again it reflected a lot of theuncertainty of the future.
Now, if you go kind of to thenext slide here, this is really
where the foundation of thatthought came from is that we
have been in a, you know,relatively expensive market.

(30:40):
If we think about the averagemultiple on the S&P over the
long term being around 16 times.
You can look at the middle ofthis chart here.
What have we always said?
That average long-term returnsfor the market has been is
around 10%.
That makes sense when you're ina higher multiple market, where
we've been for the last coupleof years.
Look to the left side of thatchart where the S&P is trading

(31:03):
over 20 times, forward returnshave tended to be more muted.
They tend to stay in that kindof low single digit range three
to 6% and so that's really thefoundation of where that Goldman
white paper came out with thisprojection going forward.
And if you believe that, and ifyou believe that to be the case

(31:24):
going forward, then it reallybegs to be thinking about income
also as a piece of totalreturns.
So whether you carve a strategylike DivP out to have as part
of your core portfolio as anincome sleeve, or you're using
it alongside other equities as ameans to have both high income
and some moderate growth to aidto that total return, it has a

(31:47):
place in both areas.
The yield environment has alsobeen changing has a place in
both areas.
The yield environment has alsobeen changing.
We're in now a declininginterest rate environment and we
saw in the third quarter oflast year when the Fed began
cutting interest rates.
The third quarter was a verystrong quarter for both value
stocks and dividend stocks.
What this study shows is thatwhen there has been a decline in

(32:10):
the 10-year by 1%, it'stypically those parts of the
market that outperform.
So what's shown here is the S&P500, shown on a dividend yield
and a valuation level brokendown in quintiles, and if you
look at the highest quintile ofdividend payers in the S&P,

(32:31):
those have been some of thestronger performers when yields
are falling, as has been more ofthe value-oriented parts of the
market.
That continues to play out.
We haven't seen a cut yet thisyear from the Fed, but we're
seeing the projections changeday-to-day as to what's going to
happen with the Fed.
Nonetheless, we still are inthis falling rate environment to

(32:54):
be thinking about.
So we think that our style andour factors are really set up
nicely in this market.

Speaker 2 (33:00):
Just want to kind of, as we're ending our prepared
remarks here, just sort of areminder.
The strategy is focused onincome.
The generation of that incomehas been very consistent over
time.
The one thing I want tohighlight here to keep in mind
is, when you think about coveredcall writing strategies,
everyone focuses on the incomethat's generated.
You should also keep in mindthe taxation of that income

(33:23):
that's generated.
So our dividends are allqualified dividends, so you're
going to be taxed at the QDIrate, the lower tax rate that
exists for non-qualifiedaccounts.
The premium income is taxed asordinary income, that short-term
capital gain.
So that'll be consistent.
But many, many, almost themajority of almost all the other
covered calls that we comeacross who are just writing on

(33:45):
the index, tend to generatealmost all their income from
option premium income, which isall taxed at ordinary income.
So when you're talking abouttaxable accounts, you know there
is that after tax return thatyou should consider and I like
our approach.
If you look at this over time,we generally are running around
50, 50, 50% of the 50 to 55% ofthe income come from dividends

(34:05):
qualified dividends and theother remaining portion coming
from premium income.
The final thing I'll highlighthere is like look, how have we
done.
You know, for those who are outthere using covered call
writing strategies in thederivative income bucket, you
know you'll be familiar withnames like JEPI and QILD and
JEPQ etc.
We said, well, why don't wejust sort of highlight, you know
, how have we done during thismarket pullback, because that's

(34:27):
what's on people's mind and whatwe're being asked about.
So this is a look atyear-to-date through again.
Last Friday is when we actuallyfinalized this PowerPoint.
It's probably playing to ouradvantage again today with
today's market, but our enhancedequity income ETF DIVP is
actually up 4.4% through lastFriday.
That's ahead of the Russell.
It's ahead of Schwab USDividend, which is a very

(34:48):
popular dividend-orientedstrategy.
Devo is another one that doesoption writing on the S&P kind
of orientation companies.
You have Jeffy here, prettymuch flat, and then you have the
cows, which is also a very,very popular ETF down two and
then all the way over to QYLD,the NASDAQ, so anything sort of

(35:09):
tracking the NASDAQ is down atleast five.
So you're talking about a 9%delta between what the NASDAQ is
doing on covered calls and ourstrategy.
Now our point here is simply tosort of diversify no different
than you do.
Large-cap growth and large-capvalue when you're out, doing an
allocation for someone for theirportfolio is don't just own one

(35:30):
covered call writing ETF.
The yields are about the samebut you get certain underlying
risk profiles that are differentby the underlying stocks that
we own.
So do we like QYLD?
Absolutely.
We think we actually complementthat very well.
Look at a portion of your QYLDand while you're generating that
income, maybe you think ofdiversifying off of some of
those positions and adding aDIVP position toward making that

(35:54):
asset allocation a little bitmore conservative, especially
during this upcoming market andeverything.
We just sort of covered thatCathy went through on details.
So with that I think we're donewith our prepared remarks.
Michael, I'll turn it back toyou.

Speaker 1 (36:06):
I see some questions.
Looks like, Cathy, you hadstarted answering some of them.
Let's talk about if it's worththinking about this in terms of
comparing it against othercovered call strategies, meaning
should somebody think aboutthis as a total substitute for
that type of an approach or canit be a complementary dynamic
against other types of popularfunds?

Speaker 2 (36:28):
I would say we liken the idea to be a complement.
They serve a purpose, nodifferent.
I mean you're owning the QQQ.
Say you're on the QQQ, it doescovered call writing.
One of the questions that comesup all the time is like why not
just own the QQQ and take awithdrawal from the returns you
get in the market, because yourvolatility is pretty.
The correlation there, I wasjust told, is about 80% or 90%

(36:51):
to the actual Q.
So I'm not sure what downsideyou're sort of protecting there,
but you are generating thatstrong income, which they do do.
I don't think it's a one oranother.
I don't think it's a one oranother game, michael.
We don't see that and you knowwhat we don't see it from.
We don't.
We hear this from the advisorsthat we work with.
So this isn't us telling youthis.
The advisors that we work withat Cullen is they use this as a

(37:14):
complement, mostly on theirfixed income side.
You know that's complementing aportfolio of maybe it's munis
and maybe it's high yield bondsor whatever they might have
inside of their core portfolio.
That they're basically taking a5 or 10 percent allocation of
that 60 percent fixed incomebucket and they're going to add
something that can generatehigher income than usually.

(37:35):
The ETFs that are in there thatare not covered call and yet
you have concern of equity.
So while you take onequity-like characteristics,
there's a portion of yourportfolio that could appreciate
over time, versus a lot of timesin fixed income.
It's hard for the underlyingsto sort of appreciate.
So I would recommend and what Isee advisors using and what they
tell me is a compliment versusa replacement.

(37:56):
If you want to do it, we're OKwith that.
They have to make that call.
If the NASDAQ market ralliestremendously, then the NASDAQ is
going to outperform us.
So that's why it's a blend ofthe two, I think.
Kathy, anything you want to addto that.

Speaker 3 (38:07):
I think you hit it, jeff.
I mean, this derivative incomegroup has so many different
approaches to options and somany different styles of
underlying portfolios to withinthere.
Some of them are just broadindexes that do index calls on
SPY, you know.
And so for us I think you knowwe're very clearly value.

(38:29):
We've got, you know, twobuckets of income coming in from
dividends and options.
We have a conservative trackrecord that shows that downside
protection, so it worksalongside a lot of those other
peers that we have.
One interesting thing I thinkI've seen is blending this with
direct indexing strategies thatare very tax efficient, that are

(38:51):
broad market exposure, and thenhaving an active portfolio.
That's going to be, you know,in the ETF is going to be more
tax efficient than yourtraditional mutual fund, but
we'll be able to kind of, youknow, have a sleeve that's more
active and income focused.
So those two ideas go welltogether.
We see people put us in incomemodels alongside, you know,

(39:12):
munis, preferreds, covered callportfolios.
There's a lot of differentplays that you can build out
with something like this, but Ithink we're very clear in the
approach and what we're tryingto achieve too.

Speaker 2 (39:24):
I've been having a lot of conversations on this,
michael.
I'll just do one more quickpoint here is this is the kind
of strategy that advisors havedone for client accounts for
decades.
I mean, this is nothing newthat they haven't been doing for
literally decades.
They would have a group of highquality, dividend paying large
cap, behemoth, mega cap stocksand they write a covered call
option to generate additionalincome for the client.

(39:45):
Now they might write longerthan we write, but it's the same
kind of concept and what wefound is just a lot of work for
them to do it.
Many of them still do it.
We sort of.
That's how we came about this.
We've run a US dividend strategyat our firm.
That's $16 billion in assetsfor 35 years.
Those clients came to us andasked for more income, so then
we started to write some optionson some of those portfolios and

(40:07):
it started to become too muchone-off so we decided to make a
strategy out of it and then thatstrategy we've been running for
14 years and now we have an ETFout of it.
So we don't look at the marketand say, hey, we should do this
because we think this will raisemoney.
We are asked to do this by theclients who already own what we
manage, and we now bring it intoan ETF format.

Speaker 1 (40:26):
I feel like we should touch on volume liquidity
because I'm always blown awaythat still to this day, some
people don't quite understandhow the ETF mechanics work.
In terms of volume not equatingto liquidity.
Yeah, still relatively smallcompared to a lot of these other
competitors that you're showinghere, and I think you're going
to get obviously a lot more flow.

(40:48):
But how should allocators thinkabout positioning if they see
the volume the way it is?

Speaker 2 (40:54):
I made the ETF myself .
I basically have learned.
I'm smiling because I feel likeI've answered this question a
thousand times, I know, but it'slike that's the game now.
I'm happy to do it again.
I'm not surprised because whenI first started to get involved
with ETFs, I thought the samething, like others.
There's 2,000 shares trade.
If I go buy 10,000 shares, I'mgoing to move the stock price.

(41:15):
It's just trying to understandhow ETFs fundamentally work and
I'll just give you a quickexplanation.
If this was a mutual fund and wehad $10 million in it and you
gave us $10 million, the nextday, I'm going to get cash of
$10 million.
So now the portfolio is 50% incash and I have to scramble to
invest all that cash over thenext couple of days.
And if the market moves like itis, one way or the other,

(41:37):
there's a cash drag that exists.
So in mutual funds I wouldagree Smaller mutual funds
getting big flows it can affectwhat happens inside the
portfolio.
I just have not been able tosee that at all, and I've been
told by 100 people it doesn'taffect it on ETFs.
And let me tell you why andI've been told by 100 people it
doesn't affect it on ETFs.
And let me tell you why Becauseif you go out and do a trade

(42:00):
and there's not enough sharesthat exist in the marketplace
today, all that's going tohappen is our lead market maker
is going to create more shares.
They're going to give you thoseshares and what they give us
when you make that investment isthey will give us our current
portfolio holdings as we weightit in each position.
They're going to give all thatto us in stock.
So if we own 32 stocks andlet's say each position is 3%,

(42:21):
we tell them our portfolio everysingle night.
So what they're going to do,they track it every single day
and throughout the day.
So when a creation baskethappens if it happens at, let's
see, it's 215 today they'regoing to look at the price for
each of those stocks.
They're going to multiply it bythe 3% weighting and that is
going to be how much dollaramount is going to be generated.

(42:44):
And they're going to go out andbuy those stocks and they're
going to deliver those stocks toour portfolio.
We have no cash drag.
I am given the portfolio inkind in the cities that I own
the next day.
So there is no cash drag, andtherein lies why the volume is
not a big deal.
The concern that some peoplehave will be that is there a

(43:06):
spread between the bid and theask is then becomes a concern
for people.
So if I go in the marketplaceand I put a big trade in for
more volume than I'm seeing on adaily basis, am I going to move
it?
No, no, all that's going tohappen is when that trade goes
through, the lead market makeris going to price it based upon
the securities in the portfolioand 215 today, and they're going

(43:29):
to give you that price on themarket.
Now I do recommend doing I likedoing limit orders at the asset
.
Usually it's what the advicethat I've been given for the
year, two years I've been kindof involved in the ETF space,
but the volume and the spreadissue should not be something
that holds people back frombuying either smaller or newer
ETFs.

(43:49):
Now our ETF.
It just hit a one-year trackrecord.
We run $160 million mutual fundversion of this.
We have a $1.8 billion SMA.
The ETF is in the same traderotation.
So when a portfolio managercomes in and they want to buy
XYZ stock, the ETF is treatedjust like the mutual fund, just
like all the SMAs we have.
It's in the throw of things.

(44:10):
So they're just really Michael,from my seat and from what I
see and I buy this ETF sort ofon a daily basis.
I want to see how it goes.
I do not see any concern forlower volume ETFs.
If this was small caps, maybe,market markets, maybe I might be
a little bit more concerned,because if a big flow of money
comes in, they have to go andbuy those underlying stocks.

(44:30):
We are buying the mega of themega large cap value stocks.
There's so much float out therethat you're just not going to
move the prices by the volumethat we get.

Speaker 1 (44:41):
I smile too when I get those kinds of questions.
It's okay.

Speaker 2 (44:45):
It's on people's mind and I love it because they're-.

Speaker 1 (44:47):
But even I smile.

Speaker 2 (44:47):
it's okay, it's one way to get it's how it works and
it's an education thing.
I've had very sophisticatedadvisors.
They know everything about themarkets and stuff and it's just
new.
So it's just about givingpeople a little bit more
education of how it actuallyworks.
But I'm happy to answer thosequestions.

Speaker 1 (45:02):
I am curious also and maybe Het, this is good for you
I mean just any sort of senseas far as people's maybe
misperceptions or wrong ways ofthinking about cover call
strategies.
I mean, again, it's been outthere for a while but I'm sure
that people get certain aspectsof it wrong from a risk going
forward perspective.

Speaker 3 (45:20):
I think it's more of just, you know, people are very
enticed by super highdistribution rates and, just to
be aware, you know of that, evenwith like closed end funds, to
be aware of leverage that couldbe as part of that, like I
mentioned.
But some of the covered callETFs, they publish these super

(45:40):
high 10% plus yields and itdoesn't really match up with,
again, the longer term totalperformance, the total returns
of them.
So just be aware, I think inany sense, you should unpack it
a little bit further to look atwhat's in that underlying
portfolio.
How are they using the options?
How aggressive are they beingwith options as well?
Because I think that a lot oftimes we think covered calls

(46:03):
being the most conservative partof you know, an option trading
strategy.
Well, it can kind of depend,though you know what all is in
that portfolio in total todepend though you know what all
is in that portfolio in total.
So do your due diligence,really look at it, ask these
questions, you know, and reallykind of poke around to be sure
you understand what you'reinvesting in.

Speaker 2 (46:22):
Mike, I'll kind of add.
There's two things I sort ofnoticed.
One is you know, with a coveredcall writing strategy, you
remember at the end of the daythe portfolio is 100% invested.
Well, 99.5% invested inequities.
Right, when we do the callwriting, that sits on the
account as an accounting cashcomponent that someone's paid us
an option premium and while ithelps to return right, because

(46:44):
we collect those option premiums, if the market drops 10%, you
know we're 100% equity invested,it's going to drop.
And the same thing holds forsome of these other, all the
kind of covered call, kind ofwriting, covered call writing
strategies.
You're basically fully invested.
The other thing, too, is you'restarting to see yields.
I would say premiums compress alittle bit as there's a lot of

(47:05):
say copycats that have come intothe JEPI world.
If you look historically inJEPI, when they first came out
they had a great yield.
It was like 12%.
It was super impressive.
It was during COVID, it wasamazing.
But now they're down to like7.5%, 8% and I think, as you
have more and more peoplewriting and doing these and
various firms keep coming outwith them, there's just not that

(47:27):
rich premium that maybe onceexisted.
Inside of that there's greatliquidity Don't get me wrong
there but maybe that is startingto get pressed a little bit.
That's why we like theindividual names, because we're
looking for volatility at theindividual name and not have to
worry about how it's working onan index.
The other thing, too, is withthese options and Kathy
mentioned it when you force adistribution, so say, we told

(47:50):
you that we want to generate 8%,but the portfolio generated 7%.
In order for me to get the 8%,I'm giving you a return of
capital and we have to disclosethat on our website and other
places.
And I've read other firms'websites and there is return of
capital on some of them.
So it's worth paying attentionto.
Is it bad?
Is it negative?
I'm not sure.
You're getting your own moneyback and it's coming in the form

(48:10):
of income to you, but youshould be aware of exactly what
Cathy said.
What we do is we only pay outwhat we make, so we're not going
to have a consistent monthlyincome.
It's going to fluctuate eachand every month.
Some months are higher becausequarterly dividends paid out
much more on March than they doin June.
So there'll be some fluctuation, and we also ran our ETF here

(48:32):
to pay monthly distributions.
We wanted to have it like abond investor.
Get used to that monthly incomethat's coming through.

Speaker 1 (48:38):
I did see a question from someone the ticker of the
equivalent mutual fund.

Speaker 3 (48:42):
Yeah, that ticker is E-N-H-N-X.
E-n-h-n-x that's the CullenEnhanced Equity Income Fund, and
all of our information isactually on our website, which
is cullenfundscom, so that'swhere you can go to download
fact sheets, learn more aboutDivP and our managed accounts

(49:03):
that we have at Schaefer Collins, so we offer a number of
different vehicles for ourstrategies.

Speaker 2 (49:08):
We're going to find our contact information there
too.
If you want to email usdirectly, happy to get you what
you need.

Speaker 1 (49:13):
And then another question I don't think you
addressed this Is there a waythat some of these attendees can
get a copy of the slides orpresentation?
By the way, folks, I'm going tohave this as an edited video
webinar on my YouTube channel,but for those that actually want
to see the PDF itself, yeah,absolutely Do you, Michael, or
they can just.

Speaker 3 (49:29):
Yeah, we also love it If you are using any covered
call strategy currently and youwant to ask us how does DivP
compare to that?
How does it look blendedtogether?
We love doing those projects toprovide you with some
observations as to how we canfit into your client account.
Feel free to send that our waytoo.

(49:50):
We'd love to do some analysisand kind of give you some
thoughts.

Speaker 1 (49:53):
By the way, I will add real quick I think that's
actually.
I'm glad you mentioned that,kathy, because the if you're
talking about some of theseother funds that have
significant assets, you're notgoing to be talking to the two
main architects of thestrategies like you would here.
I think that personal touch isactually increasingly important.

Speaker 2 (50:11):
I was going to say Michael, to make it easy for
anyone just watching this.
There you can see in thebackground the name of our firm.
So just shoot me an email andwe'll get you the PDF of the
PowerPoint.

Speaker 1 (50:19):
And again, folks, this is a CE credit-approved
webinar.
I will email everybody to getrelevant information from all of
you so I can submit it to theCFP board.
Any final parting thoughts here, especially given market
volatility, which makes coveredcall strategies even more
interesting.

Speaker 2 (50:34):
Well, the only thing I would add is, you know if
we're new to anyone viewing here, we're obviously here talking
about our covered call writingstrategy.
We have some really strongperforming international and
emerging market strategies thatI'd be happy to show.
We're very known for dividendinvesting and while the world is
getting a little bit moreconservative, you know
international when you go to theinternational markets and
emerging markets.
Value historically hasoutperformed growth in those

(50:56):
markets.
And while we're here to talkabout a covered call, we have a
lot of really good offeringsthat we'd love to talk to you
about and maybe highlight somethings that might be more
applicable if this maybe isn'tone of them for you.

Speaker 1 (51:05):
Appreciate those that attended Again.
This will be an edited videoslash webinar on the YouTube
Lead Lag Report channel.
Those that again are lookingfor the CE credits you'll hear
from me soon enough andhopefully we'll do more of these
going forward.
Thank you, jeff.
Thank you Kathy.