Investment Strategy
- Portfolio yield goal is 7%+ generated through both dividend and covered call premium yields
- Covered calls selection written on ~25-40% of the portfolio to generate increased income
- 30-45 undervalued stocks (primarily U.S. companies)
Portfolio Managers
Strategy Attributes
This strategy applies the same value investment discipline as the High Dividend Value Equity strategy, but adds selectively-written calls on a portion of the stock portfolio. It invests in high dividend stocks and sells short-term call options on 25-40% of the portfolio to generate increased income for investors.
The portfolio yield goal is 7.0%+ (gross), which we seek to generate through a 3.5%+ dividend yield and a 3.5%+ call premium yield. Investors participate in the long-term appreciation of equities while realizing reduced volatility from disciplined value investment and income generation.
The covered call overlay is designed to enhance income and risk-adjusted total return. Call options are sold based on quantitative factors such as equity valuation and fundamentals, and quantitative factors such as premium return thresholds. Call options are short in duration to maximize time-value-of-money receipt and visibility of equity-market catalysts.
- The strategy invests in undervalued, large-cap companies with above average earnings growth potential and dividend yields.
- Calls are selectively written on a portion of the stock portfolio (25-40%) to generate increased income for investors.
Investment Process
The Schafer Cullen investment team relies heavily on fundamental research as part of its investment selection process. Because the firm has a disciplined value investment philosophy, a rigorous review of company fundamentals vs. industry peer and the overall market is an important part of the investment process.
Screen for Value:
- Begin with largest 2,000 publicly traded equities
- Dividend yield of 3% or greater
- Screen for stocks in bottom quintile according to P/E and P/B basis
- Typical market capitalization >$5 B
- Sector and Industry Inflection Points
Fundamental Research:
- Seek low debt to equity and high returns on investable capital
- Search for catalysts that can drive earnings, including:
- New markets
- New products
- Strong management with clear vision and commitment to shareholder value
Portfolio Construction:
- Approximately 30-45 holdings
- Diversification across 15-20 industries
- No more than 4% in any one stock at cost
- No more than 15% in any one industry at cost
- No more than 25% in any one sector at cost
- Top 10 holdings typically represent 35 – 40%
- Up to 30% non-US exposure (ADR)
Sell Discipline:
- Price objectives reached
- Earnings/Dividend growth not realized
- Deteriorating fundamentals
- Decline of 25% - investment thesis reassured
- Cuts in dividend policy
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