In today’s market, where generating meaningful yield remains challenging, Cullen Capital Management introduces a solution that reshapes traditional equity income approaches for advisors and their clients. The Cullen Enhanced Equity Income ETF (ticker: DIVP) offers a distinct, actively managed approach to covered calls, allowing investors to target a 6.5–7% annual yield while maintaining exposure to quality dividend-growing stocks.
In an interview with The Wealth Advisor’s Scott Martin during Future Proof 2024, Catherine Howse, Managing Director of Cullen Capital Management, explains how the firm’s enhanced equity income exchange-traded fund (ETF) strategy provides advisors with a versatile tool to deliver both consistent monthly income and long-term growth potential, a vital combination in today’s market environment.
Beyond Traditional Covered Call Strategies
As covered call funds gain popularity in the higher interest rate environment, Cullen sees the need for a more sophisticated, actively managed approach. Howse emphasizes that “you really need to be examining these covered call funds on a couple different criteria,” adding that the growing field of covered call income funds requires careful evaluation of their underlying methodologies.
The DIVP ETF is designed to align with this vision, giving advisors an option that goes beyond simple systematic covered call writing. “We first invest in a portfolio of about 30 to 40 dividend-paying, dividend-growing stocks. Then we selectively sell calls on those individual companies,” Howse explains, highlighting the dual active management approach that sets DIVP apart.
Redefining Income Generation with Active Management
DIVP’s approach combines active stock selection with selective options writing, ensuring that if the market presents opportunities, the fund can maintain flexibility in its covered call strategy. “It is true active management on both the stock-picking side and the option-writing side,” Howse notes.
The strategy targets a 6.5–7% annual yield, which the firm has consistently exceeded in its separately managed account (SMA) version since inception. This consistency stems from Cullen’s disciplined approach to both dividend stock selection and options writing, providing advisors with a dependable income solution for their clients.
Overcoming Traditional Income Limitations
For investors seeking reliable income, DIVP presents a fresh opportunity. Howse points out that “there still is a really rich group of dividend-paying stocks. If anything, in the last year and a half, as we’ve had such concentration in markets and attention has been on a handful of sectors, a lot of those really dividend-rich areas have become cheaper.”
The ETF is particularly advantageous in the current market environment, where traditional income sources may fall short of client needs. Looking ahead, Howse sees potential catalysts: “Moving forward, thinking about the next couple of months and into next year with interest rates coming down, we’re seeing that pressure valve really kind of come off some of the dividend-rich areas that have been underperformers. They’re starting to have some more life into them.”
Disciplined Approach to Portfolio Management
Cullen has structured DIVP to reflect its long-term investment philosophy while maintaining income consistency. “We take a long-term approach to all of our portfolios at Cullen,” Howse explains. “We’re really trying to, again, find those good quality value stocks that are going to grow earnings and grow dividends over the next five to 10 years.”
The strategy’s success in SMAs over the past decade demonstrates the effectiveness of this disciplined approach across various market cycles. By focusing on quality and valuation rather than simply reaching for yield, DIVP aims to provide sustainable income over the long term.
DIVP: The Power of Selective Options Writing
Among covered call ETFs, DIVP stands out with its selective approach to options writing. Rather than implementing a systematic covered call strategy across the entire portfolio, Cullen’s active managers carefully choose when and on which positions to write calls. The selective approach allows the fund to maintain flexibility while targeting consistent monthly distributions.
Additionally, the integration of careful stock selection with targeted options strategies creates a more nuanced approach to income generation. “Having that discipline around the call-writing process is what has led to having more of an expected outcome in what income will be going forward,” Howse notes. This predictability in income generation, combined with the potential for participation in equity market gains, provides advisors with a powerful tool for client portfolios.
Practical Considerations: How Advisors Can Implement DIVP in Client Portfolios
As advisors and their clients navigate an environment where generating meaningful income remains challenging, DIVP presents an effective option to secure consistent yield without compromising on quality. The ETF represents a natural evolution of Cullen’s proven SMA strategy, now available in a more accessible and cost-effective structure.
For advisors seeking enhanced income solutions, DIVP offers compelling features: a proven track record in separately managed accounts, active management on both equity and options components, monthly distributions targeting a 6.5–7% annual yield, and the efficiency of the ETF structure. “We would love to speak with clients and advisors one-on-one to see really how they can fit into their portfolio,” Howse concludes, emphasizing the strategy’s role in meeting today’s income challenges while maintaining a focus on long-term growth potential.
______________________
Additional Resources
- Contact: Jeff Cullen, Jeffcullen@schafer-cullen.com
- Cullen Capital Management Website
- DIVP Fact Sheet
- DIVP Summary Prospectus
______________________
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.
To determine if the Fund is an appropriate investment for you, carefully consider the fund's investment objectives, risk, and charges and expenses. This and other information can be found in the fund's prospectus, which can be obtained by visiting https://www.cullenfunds.com/. Please read the prospectus carefully before investing.
The Cullen Enhanced Equity Income ETF is distributed by SEI Investments Distribution Co. (SIDCO).
