Jennifer Hill

 

Principle Wealth Partners in Madison, Connecticut, combines mutual funds and ETFs to build client portfolios. One active ETF the firm has used since October 2021 for most clients, typically as a satellite holding, is the Amplify Enhanced Dividend Income ETF (DIVO).

‘After the market appreciation of 2020 and into 2021, we were looking for a specific way to maintain equity exposure but help mitigate volatility while providing a yield to portfolios,’ says Andrew Cialek, Principle’s director of finance and analysis. ‘DIVO allowed us to accomplish all of these in an ETF wrapper.’

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The fund currently yields almost 5%. Since its introduction – during a rocky period for markets – it has significantly outperformed its benchmark (the Cboe S&P 500 BuyWrite index) and the S&P 500.

‘The strategy is concentrated, but the names are well-known, large-cap, dividend-paying companies,’ says Cialek. ‘The management team employs strategic covered call writing on the individual names within the ETF to generate additional income opportunistically over time.

‘The ETF wrapper provides an opportunity for portfolio managers to broaden their reach in a tax-efficient way, so it makes sense that the industry continues to trend towards these types of products provided managers can consistently deliver.’

Andrew Cialek, Director of Finance and Analysis, Principle Wealth Partners

‘Overall, the product stays balanced by sector and looks to add 2-3% from dividend income in addition to 2-4% from option premiums. Although the strategy has only been around since 2016, the management team of Kevin Simpson and Josh Smith have been able to consistently deliver on their overall objective in a risk-adjusted manner.’

Principle has used other active ETFs in the past to fulfil specific objectives and Cialek expects to see continued growth in the landscape.

‘Part of our job as stewards of client capital is to identify managers who can execute on their proposed strategy,’ he says. ‘The ETF wrapper provides an opportunity for portfolio managers to broaden their reach in a tax-efficient way, so it makes sense that the industry continues to trend towards these types of products provided managers can consistently deliver.’