In a market where growth often steals the spotlight, Cullen stands out with its disciplined focus on value investing. Known for its emphasis on dividend growth and finding undervalued opportunities, the firm has consistently delivered strong results. This philosophy now drives their recently launched Cullen Enhanced Equity Income ETF (ticker: DIVP), a product designed to build on the firm’s established expertise in dividend-focused strategies.
In a conversation with The Wealth Advisor’s Scott Martin, Catherine Howse, Managing Director at Schafer Cullen Capital Management, shared insights into the investment strategy behind DIVP, highlighting its unique features and the firm’s dedication to crafting income-focused solutions for financial advisors.
Performance Driven by Discipline
Cullen’s flagship portfolio, the High Dividend Value Equity strategy, exemplifies its disciplined approach. Howse proudly states that over rolling five-year periods, the firm has delivered positive performance consistently, even when the broader value index declined. “It’s a process that’s very clear, but it’s also worked,” she asserts.
This steadfastness resonates with investors seeking a reliable investment strategy. Howse emphasizes that value investing is not synonymous with stagnation. Instead, she argues that many undervalued stocks represent dynamic sectors poised for growth. “We are not buying the unloved part of the market; we just don’t want to overpay for innovation,” she clarifies.
Cullen’s portfolio managers are focused on sectors transforming the economy, including technology firms involved in cloud computing and artificial intelligence, as well as companies in renewable energy and decarbonization efforts. “These stocks have gotten cheaper and are more attractive,” Howse adds, noting that the current market conditions offer unique opportunities for discerning investors.
The Importance of Active Management
Howse further illustrates the necessity of rigorous analysis in the value investing process. “We have to be diligent when we see multiples expand or get to an area where we don’t see earnings justifying the price,” she explains. This proactive stance helps the firm maintain a portfolio aligned with its valuation targets.
The firm’s philosophy also includes trimming positions to ensure that no single stock dominates the portfolio, which is vital for managing risk and ensuring ongoing income generation. “We are trying to maintain both a high and growing stream of income for clients, but also make sure that we are attractively valued all the time” Howse emphasizes.
Introducing the DIVP ETF
In 2010, Cullen launched a covered-call portfolio in response to increasing client need for higher yields, particularly from retirees seeking more than the typical 3% to 3.5% dividend yield. Howse notes, “The number of retirees with that demand keeps going and going.” Recognizing this trend, the firm began selectively selling call options on stocks within their high dividend value strategy before 2010 and took time to refine its process.
The effort culminated in the launch of the Enhanced Equity Income portfolio in 2010. Today, this strategy is available as a separately managed account (SMA), a mutual fund under the 40 Act, and, most recently, as an ETF with the ticker symbol DIVP. The primary goal of the DIVP ETF is to enhance income by selling calls on a portion of the portfolio, targeting a total yield of 7%. Howse emphasizes that “that’s a pretty high number that actually competes with treasuries even in today’s world where they’ve been elevated.”
With more than a decade of implementing this strategy, Cullen has established a solid process for income generation. “Most importantly, the income is very consistent,” Howse states, adding that the 7% yield has been achieved every year since the strategy’s inception.
A Potential Bond Replacement
With fixed-income markets under pressure as a result of rising interest rates and low yields, advisors are increasingly looking for alternatives to traditional bonds. Howse positions DIVP as a viable option because of its ability to generate steady income while still offering equity exposure, explaining that holding DIVP over a five-to-10-year horizon can yield results comparable to traditional bonds.
“Think of it like an income alternative to bonds,” she says. “But I think the kicker is that it’s not just the income. You still have equity exposure, and you still have dividend growth on top of that high yield. So, it does offer even other greater outcomes to bonds.”
The blend of equity exposure, dividend growth, and high yield offers a compelling solution for advisors seeking both income and growth potential.
Meeting Advisors’ Needs
Cullen’s commitment to evolving alongside client needs is evident in its diversified offerings. Howse details the various vehicles the firm has developed to accommodate advisor preferences, including SMAs, mutual funds, and now the DIVP ETF. “We’ve really listened to the advisors and the demand that they receive from clients,” she explains.
The firm has also expanded its offerings to include international and emerging-market high-dividend value portfolios. “Being a dividend manager in this space gets so overlooked,” Howse acknowledges. The focus on dividends in emerging markets, often associated with high growth and risk, provides a unique value proposition.
“Having that dividend focus leads us to really deliver a lower volatile experience and a volatile asset class,” she adds, making a case for the role of dividends in diversifying income streams.
The Future of Investing with Cullen
Cullen’s dedication to supporting financial advisors is evident in the variety of investment vehicles it offers. From separately managed accounts to mutual funds and ETFs such as DIVP, the firm tailors its strategies to meet the diverse needs of advisors and their clients.
Howse’s enthusiasm for the firm’s strategies and its adaptability to market conditions reinforces the importance of active and professional management in today’s investment landscape. With the DIVP ETF, Cullen not only aims to provide enhanced income but also offers investors an opportunity to participate in the long-term growth of carefully selected companies.
With a proven track record in value and income investing, Cullen stands at the intersection of tradition and innovation, presenting a compelling case for investors seeking value, income, and a commitment to long-term success in an evolving market.
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Additional Resources
- Contact: Jeff Cullen, Jeffcullen@schafer-cullen.com
- Cullen Capital Management Website
- DIVP Fact Sheet
- DIVP Summary Prospectus
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Disclosures
The Fund’s holding and sector allocations may change at any time due to ongoing portfolio management. References to specific investments should not be construed as a recommendation by the Fund or Cullen Capital Management to buy or sell the securities.
Investing involves risk. Principal loss is possible. Foreign investments involve additional risks, which include currency exchange-rate fluctuations, political and economic instability, differences in financial reporting standards, and less-strict regulation of securities markets.
The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund’s gains or losses. Derivatives are also subject to illiquidity and counterparty risk.
The Fund’s investment objectives, risks charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company. Read it carefully before investing.
The Cullen Enhanced Equity Income ETF is distributed by SEI Investments Distribution Co. (SIDCO).
