Madison Investments unveils covered call ETF

Aug 25th, 2023 | By | Category: Alternatives / Multi-Asset

Wisconsin-based Madison Investments has launched a new actively managed ETF providing income-enhanced exposure to high-quality US stocks.

Steven Carl, Chair of the Executive Committee and Chief Distribution Officer at Madison Investments

Steven Carl, Chair of the Executive Committee and Chief Distribution Officer at Madison Investments.

The Madison Covered Call ETF (CVRD US) has been listed on NYSE Arca with an expense ratio of 0.90%.

The fund is led by Portfolio Managers Ray Di Bernardo and Drew Justman who collectively have 60 years of investment industry experience.

The portfolio managers select between 30 and 60 securities from the large and mid-cap segments of the US equity market with both growth and value stocks being eligible for inclusion. Up to 15% of the ETF’s assets may be invested in securities listed outside of the US.

The ETF favours companies exhibiting sustainable competitive advantages, industry leadership, robust balance sheets, accelerating earnings growth, rising return on invested capital, strong free cash flow generation, positive technical trends, and reasonable options premiums.

The portfolio will generally seek to maintain sector neutrality relative to the S&P 500.

Once the ETF’s securities have been selected, the managers may opportunistically write covered call options on single stocks held within the portfolio. Typically, the call options will be written out-the-money and will expire within two months.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells call options on that same asset in an attempt to generate more income (the additional income from the option’s premium) than the asset would otherwise provide on its own from dividends or other distributions.

While covered call strategies do limit upside participation, they can generate a steady income stream that is diversified from traditional sources of yield from equities and bonds.

The ETF makes distributions to investors on a quarterly basis.

Steven Carl, Chair of the Executive Committee and Chief Distribution Officer at Madison Investments, said: “Given the current investment environment, there is a palpable demand for strategies that pursue both stability and performance differentiated from traditional benchmarks. Each active ETF utilizes a disciplined investment process to pursue consistent income and market-like growth with below-market risk. We believe these funds are a testament to our legacy of providing investment strategies that balance return potential with risk management.”

Ray Di Bernardo, Portfolio Manager at Madison Investments, added: “Having actively managed covered call portfolios since 2004, our experience in this space is time-tested. With CVRD, we are extending our proven strategy to a broader audience drawn to the ETF format. Our commitment to active management and a traditional, single-stock covered call approach offers a compelling strategy for investors searching for higher-yielding products.”

Madison made its ETF debut earlier this month by introducing the Madison Dividend Value ETF (DIVL US) which invests in dividend-paying stocks that exhibit a combination of above-market yield and growth potential.

The firm will further expand its ETF suite in the coming weeks with the launch of two more actively managed income-focused funds: the Madison Aggregate Bond ETF (MAGG US) and Madison Short Term Strategic Income ETF (MSTI US).

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