Page 33 - Investment Advisor July/August 2022

Liquid Alternatives Manager of the Year

Capital Wealth Planning
Capital Wealth Enhanced Dividend Income Portfolio

iquid Alts covers a lot of territory,
L but for Capital Wealth Planning,
which won the category in the 2022
Envestnet/Investment Advisor Asset
Manager of the Year award, it was
its covered call writing that brought
it home.
Keep in mind that the equity port-
folio is an enhanced dividend income
strategy that also has covered calls
in its quiver, said portfolio manager
Kevin Simpson. “We endeavor to cap-
ture 80% to 90% of a rising market,”
he said. “We know we’re not going to
capture or outperform it more times
than not, but if we can capture most of
it, that’s the objective.”
In 2021, the fund returned 21%. As
Envestnet analysts noted in their report Kevin Simpson
that Capital Wealth did “an excellent at $235, and the stock continued to go
job in delivering strong and consistent Title: Manager higher. Ultimately, CAT peaked out at
performance, balancing total return Years with firm: 17 $245 before rolling over and trading
and income generation, and conducting down to $200 again, so we were able to
active option overlay.” Years in financial services: 30 reenter our position.”
The covered call strategy isn’t similar He said, though, they rarely buy an
to many that buy and hold. Simpson said Investment/Asset Class Focus: option at the time they buy the stock.
they “have a tactical approach to cov- Liquid Alternatives “If we’re investing in a stock, we like the
ered call writing, which tends to harvest prospects that it might go higher,” he
volatility so our process will engage in Asset management firm: said. “We would tend to exercise some
more covered call writing when volatil- Capital Wealth Planning patience before layering a covered call
ity is higher and we’ll dial back when Year firm founded: 2005 over the top of it. Our process is very
volatility is lower.” Number of employees: 25 simple. We look for opportunities every
Further, as the analysts pointed out, day on all the positions that we own. We
Capital Wealth “manages its options AUM as of March 31, 2022: tend to look for one month out out-of-
positions, including closing out or roll- $5.5 billion the-money covered calls. That’s kind of
ing forward before their expiration, to our spot.”
potentially enhance performance. In contrast, many covered When the premium is attractive and risk-reward is good,
call strategies adopt a passive approach in option overlay such they make the play. “What’s our risk? It is we could forfeit the
as ‘write-and-done.’” stock. We want to make sure there’s enough premium there to
Typically, said Simpson, covered calls are written on 30% to allow us to capture some upside and [we’re willing] to take that
60% of stocks in the portfolio. risk,” Simpson explained.
To illustrate how effective covered calls can be, Simpson He noted that 2021 was relatively easy for them as stocks
explained that “active management is the thesis behind what were mainly higher. The hardest part from the option side “was
we do and covered calls sometimes make it even better,” he the absence of volatility … it made it difficult to generate premi-
said. One example is a position in which they wrote a covered um.” This isn’t necessarily the case in 2022, where the market is
call on Caterpillar. “We had the covered calls written about giving it back. And although they have to work harder, a volatile
$235, after acquiring the stock at $200. We got called away market is when their strategy really pans out, he said. — GS

JULY/AUGUST 2022 INVESTMENT ADVISOR 31