How Covered Calls Can Boost Income

Focus: FUNDS

Using covered calls with big-cap value names is the successful strategy used by fund manager Craig Van Hulzen. He also describes the fund’s methodology for identifying companies with established brand names and good position within their industries.

Kate Stalter: Today, our guest on The Daily Guru is Craig Van Hulzen of Van Hulzen Asset Management.

I wanted to talk first today about your Iron Horse Fund (IRHAX), which, as I understand, was just started last summer, a few weeks before the market went into freefall. So I wanted to start out by discussing not only the performance since then, but also the fund’s objectives and your investment philosophy.

Craig Van Hulzen: Sure, thank you. Yeah, as you mentioned, the fund did launch in the first week of July of last year, and the coveredcall strategy that we’ve been managing for ten years in our separately managed accounts. We did launch right into a market decline, but it’s a covered call strategy that is designed to, over the long term, and over a full business cycle, produce similar returns to the stock market, the S&P 500, but do it over time with less risk.

And the covered calls do two things for the strategy: They generate additional income over a dividend yield of a commiserate index, and they also work to decrease the day-to-day price volatility of the fund, relative to just a long-only stock portfolio.

Kate Stalter: I wanted to talk just a little bit more about the covered call strategy because it is something that maybe some of our listeners may not really quite be aware of.