Jeff Cullen

So always on investments. It's been a great industry and really like being in it. Yeah.

That we've run for 13 years in SMA. So that's kind of the history that we have. Firms based in New York, but you have people and local sales and marketing people scattered around the US to meet with advisors.

The options that we're writing are all short term from two weeks to one month. They're always out of the money between two and say 4%. And that will change depending on the stock that we're going to write on and the volatility. And we just rinse and repeat that each and every month. So since the options are typically two weeks to one month, we're just rewriting options on a continual basis each and every month. The nice part is by writing on the individual securities, there's always something going on. Like today, there's news and headlines in the Middle East and the energy stocks are up, for example, today. So they'll probably write on or they may write on some of the energy names if they feel like

They can get option premium. But the strategy is run for income. So if you're the combination of dividend income and then options premium, when you add the two together, you get this income level that we're seeking. We've run the strategy for 14 years in a separately managed account. And because we're writing options on the underlying names, the minimum on the separately managed account is a little higher than most advisors are used to. It's a $250,000 minimum per account. But so a lot of advisors have come to us. We have $1.8 billion in the strategy right now. So it's $1.8 billion in this 14-year separately managed account strategy. And advisors came and said, look, I want to use the strategy in IRA accounts.

I want to use it in smaller accounts. I want to use it as an allocation in my fixed income portfolio for additional income. Can you make an ETF out of it? Because it's easier to implement and I can get it at a lower minimum. So we did. We launched it. We just came upon a year's anniversary this past March right now. And all things are kind of clicking. No, it's great.

So for example, we're not going to compare a utility to a technology stock for PE ratios. It's going to be XYZ stocks, historical PE ratio is 25. And right now it's trading at 18 with this market correction. And the dividend yield is now 3.4% or something like that. That becomes attractive to us. We want to see earnings growth from the company. We want to see expansion. We want to see reasons why the earnings are going to rise. And then we want to see is dividend growth and that particular stock coming from the earnings growth in a company. We don't want them to do fancy financial engineering and borrow debt in order to fuel or fund a dividend payment. We want that combination of the three.

Low PE, dividend yield, and dividend growth. So once though, and then you want a diversified portfolio, because if you're writing options on only two sectors, right? If your valuation brings you to owning, say, staples, utilities, and energy, then that means I have to write or the team has to write options only in those three options. Well, there's no in those three sectors. So if there's no volatility, you can't get good options premiums. So the portfolio managers build a diversified portfolio. There's holdings in each sector of the S&P 500. And then that gives them more availability to write options on. So it's those combinations of the three. And the underlying stocks, Brad, are picked first. So they're picked from a fundamental perspective that we think those stocks are going to go

Up in stock price, period. After that, those stocks are hinted to the options portfolio manager who looks at them and is looking for that volatility. So he's going to look at that and say, all right, well, are we willing to lose XYZ stock? Let me use an example of ExxonMobil. Are we willing to lose ExxonMobil? And if we don't think the stock's going to appreciate, we'll write an option on it if we can get a good options premium. If ExxonMobil is going to pay a dividend, we're not going to write on it because we want to collect that dividend. The strategy is run for income, so we want to collect that dividend. A lot of times the portfolio managers, because I mentioned we buy the stocks because we think

They're going to appreciate first, a lot of times they will write half positions, right? So we'll write on half the stock. So if ExxonMobil, if volatility in the Middle East happens or there's a good earnings on ExxonMobil, we still have half the positions. And if we get called away, we're only losing half the position on being called away. So they're very thoughtful on how they pick the underlying stocks and then how they do the options overlay. So a couple of questions out of that.

Now in the strategy, because you're writing options on those names, we are called away. we're called away probably a third of the time. Many times and most of the time, most of the time, we usually buy the same stock back. So if we wrote on Exxon, we got a good options premium, we got half the position called away, we'll likely write on it back or we'll wait for Exxon maybe if we thought it might trend down a little bit or if they add really robust earnings and it shot through and maybe trades back, we'll add back to it. Otherwise, we might move on and then buy Chevron or buy another energy kind of position. So that turnover, that leads to higher turnover in the overall portfolio, the enhanced equity

Income because of the options. But the underlying names to your main point is probably about 15%. Got it.

Think about the scenario here. Again, I'll use ExxonMobil as the example. I don't have the stock price in front of me, but say the stock kind of runs up. And usually what happens is the stock starts to run up. The PE ratio then moves with it until they have earnings announcement. The yield goes down because the stock's appreciating and they haven't increased their dividend yield. Then usually earnings come out. They announce some kind of dividend increase, right? We want dividend growth. That then pushes up the dividend yield, pushes down the PE ratio. So you sort of have to be patient on these positions and let them play out. These are large mega cap. Again, as I mentioned, household names that we think can appreciate and we believe will

Appreciate in price over time. Because otherwise, you're just chasing yield. If you're just chasing yield, you can do that. And there's a lot of ETFs that do that. It's just not what we do. Yeah. So you're getting two sources of income here.

But that historical yield has ranged between, say, 3% to 3.5 plus percent. So when I look at the separately managed account and aggregate on each particular year, we have ranged over the last 14 years between 7.2 and 8.3 total yield. Of that 8.7, 2 to 8.3 yield, half, about 55% has come from dividends, which are taxed as qualified dividends, right? The lower tax rate, their QDI. And the other half is coming from options premium income, which is taxed as short-term capital gain or ordinary income, which is different than you'll find in some of the other ETFs that exist than just right in the index.

Now, again, we can generate... And so the yield range in the separately managed account, that 7.2 to 8.3, we could... I could... The team could generate 10 on yield if they wanted to. You're just going to write on everything and you're going to wind up getting called away a ton. So you generate income, but you give up total return. So we're trying to give you that combination of both. Get good income for you, participate in the upside where it's there. And then you also have that downside benefit, which is actually showing super well for our portfolio this year. we have the valuation discipline first. That helps on the downside kind of capture. Then on top of that, we have dividend yield. And then on top of that, you have option premium income.

So there's a lot of downside help. We don't do buffers. We don't do puts in these strategies. We've looked at it. they're expensive. They cap... They kind of... They work for people. They kind of corral you in certain ranges. And we don't really want to do that. We just want to say that this strategy actually is where advisors have done this for decades. This was a corner office financial advisor strategy that they do. And they still maybe do where they just own large mega cap stocks and they write options for their clients. It just became owners to do. So we made it to a package product for people.

The income, but you don't really get a chance for any kind of appreciation on that over time. So that is sort of how advisors kind of focus on it. But in an up market, we will have appreciation beyond the income, right? So if we just generated folks on generating income, the average return in this portfolio might be say 7% would be the logical number here. But we have some years where the portfolio has been up 21%. If the market's up 31%, it depends what's moving the market. So far this year, this is obviously recording in 2025, you have a lot of the Nasdaq market sort of getting hit, but you have dividend payers actually positive this year.

And we've been participating in that. So the profile is income generation and the ability for total return from the underlying stocks. Because you have to figure out the math here. If we own 32 stocks and we write on average on 33% of the portfolio, okay? So now technically we're writing on say around nine names. Now I told you we write half positions, et cetera, but just say we did full writes. You're being written on nine names and you're only called away 25% to 40% of the time. So I'm really only losing four or five stocks if they get called away, if they break through strike price. So you still have all those other stocks that have the chance for appreciation. Yeah.

You'll have half the people think it's going to go up. So you have someone who's usually a buyer for our positions on what we do. A sweet spot, to your point, is sort of now. You have sort of this headline risk. There's volatility. There's a bit of a push toward conservative value investing from the go-go-go growth that's been on the Nasdaq and the S&P. And that creates a good blend. And the way I liken it is our firm is a value-oriented investment. So we manage non-covered call option strategies as well. And we're often used as a blend with a growth manager for our financial advisors that have used us for decades. And that's how we're reviewing the same thing.

While many of the popular ETFs that do cover call writing today, they tend to be S&P 500-oriented or Nasdaq-oriented, where we're the value side of the equation. We actually blend super well with them. So if people are using those, great. They work super well. I would have them think about us and look at what's kind of happened with the pullback and the Nasdaq specifically and say, well, maybe I should take a portion of what I own in some of these and allocate it to DIVP as a value play. No different than I do my normal core value style investing, growth and value. So we're the only manager I know about on the value side of the equation that's doing covered call writing. And we're not doing that on an index.

We're actually doing that on those individual names that I mentioned. Yeah.

Equity volatility from household large cap value dividend names. Because look at the breadth. The market goes down. these stocks are going to go down with it. So it's not like a fixed income. It's more risky than fixed income. But you're sort of liking it to junk bonds a little bit. Okay. It's probably riskier than junk bonds because you actually own the equities. But when people are doing allocation to junk bonds, they want more yield. They're taking on equity-like characteristics. And this is sort of in that sort of vein. I see a lot of financial advisors using it for the three-prong approach too, right? Because right now I told you our underlying dividend yield in the portfolio might be 4.2%.

But we don't change those stocks underlying that often. And those companies historically have increased their dividends in our portfolio on average somewhere around 6% to 8%. So that 4.2% yield for you, if you stick with us, starts to increase over time as each of those companies increase the amount of dividends they're paying. And then we're just kind of writing covered calls on it. So it's this decent way for people to have a nice conservative equity income strategy with a focus on income and conservative equity. And that's sort of where it can blend in portfolios for advisors.

It is very, very effective. Very effective. So that is one of the main reasons we made this particular strategy. We manage about 13 different separately managed accounts. We picked this one specifically because it's easy to implement in an advisor's UMA account or a brokerage account where you just want to own a sleeve of something. Very, very easy to implement across the board versus the paperwork and everything that goes involved with a separately managed account. So I have spent a lot of time figuring out what other strategies we should launch into ETFs. And I have a laundry list. Sort of the issue is it becomes a little chicken and the egg.

Most of the major firms, we have $1.8 billion, as I mentioned, in the separately managed account strategy. The ETF version has to reach a certain threshold in assets in order for it to be activated at a lot of the major wire house firms. They have these internal mandates. So I know that when we hit these strategies, we've been talking to them. They're very active. They're very interested in activating it for us. So for any financial advisors that have familiarity with our separately managed account, ETF hopefully be coming to your platform. But in the meantime, you sort of have to go down that path. So I want to make more ETFs here. I'm sort of waiting to see how this SEC ruling comes out on share classes on a mutual fund.

It makes a lot of sense for an active manager to sort of wait to see if just adding a share class of an ETF share class to an existing mutual fund would make it more operationally efficient and easier to work with the wire house platforms and the regional BDs and the RIAs that we work with where the funds are already available. So we're definitely making more ETF share classes. We're just going to wait a little bit to see how best to do it and the timing. Because if you make an individual share ETF from scratch, you start from zero, where it might make more sense for us. But that's our plan is to sort of add ETF share classes. And you can see clear as day, this is sort of the future.

I've come from a couple of different conferences. You asked me how it's been. I can honestly say I love it. There's a huge group of people who only do ETFs, right? So they might love what we do, but if we don't make it available in the vehicle they like to implement it in, then we're sort of missing out. And I've met not only yourself here from a conference, but I've met tons of people that are just doing ETF only. And it's really an interesting platform. And I've also really come to love how open the ETF community is to one another. I will meet firms who do what we do, exactly what we do, and we will share information. And that doesn't happen a lot in some of the other areas that I work with.

And it's been refreshing. And it's sort of a throwback to the 1990s when I first started to work. Very collegiate, very cooperative. And it's been really fun. Yeah.