The enhanced income ETF market has exploded in recent years, with many funds sticking to a familiar formula: buy a broad index and systematically sell covered calls across the entire portfolio. Cullen Capital Management takes a very different path with its Cullen Enhanced Equity Income ETF (ticker: DIVP), building its strategy around value-driven stock selection before layering in selective options writing.
Instead of beginning with market-cap-weighted benchmarks, DIVP starts from a disciplined value process. The portfolio is built with large-cap companies trading at low price-to-earnings ratios and demonstrating strong dividend growth potential. Only after that foundation is set does the team write covered calls, targeting about 25–40% of holdings each month.
Although DIVP debuted in March 2024, the strategy itself is hardly new. Cullen has built it in separately managed accounts (SMAs) for more than a decade, giving advisors a long performance history to evaluate and confidence in how the approach behaves across different market cycles. Moving it into the ETF wrapper brings the added advantages of daily liquidity, transparent holdings, and generally lower costs compared to SMAs or mutual funds.
“We’re very happy that DIVP is one of the first actively managed, one of the first value style, one of the first income-producing ETFs in that vein that is available to investors,” Timothy Cordle, Managing Director and Portfolio Manager at Schafer Cullen Capital Management, tells The Wealth Advisor. “As managers, we appreciate the efficiency and the flexibility of the design of this particular investment vehicle. And investors, no doubt, like the simplicity of the investment, its liquidity, and its lower fees.”
Why Value as the Starting Point
Traditionally, enhanced income ETFs are built on a broad equity index such as the S&P 500, with options layered across the basket. DIVP flips that model. The fund starts with value stocks, which normally carry an income advantage, then adds a second source of income through selective option premiums.
“Value equities make excellent income investments for long-term investors because they typically pay larger dividends and from lower valuations on the share price than core growth equities do,” Cordle explains.
The value-first construction naturally pairs with options income. When value stocks trade at depressed prices, yields often rise. Meanwhile, periods of market stress tend to lift option premiums—a dynamic Cordle describes as having “a synergistic relationship” between the two.
“When the value style’s out of favor, dividends generally trend higher, while when the market is strong or volatile, premiums can be very strong,” he says. Together, those income streams may help provide more consistent distributions across market cycles.
A More Selective Way to Write Options
Where many funds apply options overlays mechanically, DIVP takes a far more hands-on approach. Cordle and his team assess individual securities and adjust coverage as conditions shift, instead of blanketing the portfolio every month.
“We have a discipline, and it’s also in our patience and focus on long-term return of equities,” Cordle says. “We have a process we follow every day, not only to identify good names for the strategy but also to write good call premiums at the best times.”
The fundamentals-based process avoids the pitfalls of systematic coverage. Each month, 25–40% of the portfolio is typically covered, but the mix of names changes based on company-specific and market dynamics.
“We are covering only a portion of the portfolio. We’re doing it with individual names. We’re completely bottom-up in that regard,” he adds.
For Cordle, the point is to balance income with equity upside. Full coverage would cap appreciation potential across all holdings, but selective writing seeks to let the portfolio participate in gains.
“We resist doing full coverage on overlay because we’re equity investors first, and total return is important to us too,” he explains. “We like being able to generate the requisite income that we think is attractive while leaving the rest of the portfolio available and uninhibited by ceilings that are entailed in call strikes.”
Tax Efficiency Built Into the Income Mix
Tax treatment is often overlooked when comparing enhanced income strategies. While covered call ETFs often prioritize the tax benefits of options, whose premiums are taxed at ordinary income rates, DIVP targets a more balanced income mix.
“Covered call ETFs generate most of their income from options premiums, and their tax is short-term capital gains,” Cordle points out. “Our portfolio income in contrast is about 50–50 from qualified dividends and from options.”
For investors in taxable accounts, that 50% allocation to qualified dividends may create tax advantages, potentially improving after-tax income without sacrificing yield.
Adapting to Market Events in Real Time
Cullen’s active management doesn’t stop at portfolio construction. The team makes tactical adjustments around company-specific events, especially earnings, when volatility spikes. Instead of writing full coverage in front of binary outcomes, they size exposures carefully.
“Being diligent with our holdings that might be at higher risk of this phenomenon, and they typically seem to be centered on earnings announcements, we will write half positions instead of exposing the entire name,” Cordle explains.
The flexibility supports the DIVP goal of sidestepping risks that systematic strategies cannot avoid, since those often continue coverage regardless of corporate calendars or volatility spikes, while maximizing opportunities.
Positioning in Today’s Market
The current environment presents challenges for all income strategies, Cordle notes. Extended market gains have driven volatility lower, reducing option premiums. At the same time, not every stock has shared in the rally, leaving value pockets behind.
He sees this situation as an opening for active managers who can be selective. “The broad equity market has exhibited a move higher for years now, and that change has pushed volatility to lows. So, not all stocks have participated strongly—and some not at all—during this particular rally,” Cordle says.
That backdrop reinforces DIVP’s dual emphasis on value investing and selective call writing—an approach designed to maintain discipline and avoid chasing yield at the expense of quality.
Why Advisors May Take Notice
For financial advisors, DIVP might represent a differentiated option in the enhanced income category. By combining a value-oriented equity strategy with carefully chosen option overlays, the ETF aims to balance income generation with capital appreciation and tax efficiency.
The structure avoids the blunt-force approach of systematic covered call funds while leveraging the natural yield advantages of value equities. “We’re the antithesis of systematic options writers—very selective, very patient, very demanding on the characteristics of the call and the premium we receive,” Cordle says.
DIVP’s portfolio may be small compared to some of its peers, but it offers a carefully considered approach that could appeal to investors seeking both high current income and the potential for long-term capital growth.
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Additional Resources
- Contact: Jeff Cullen, Jeffcullen@schafer-cullen.com
- Cullen Capital Management Website
- DIVP Fact Sheet
- DIVP Summary Prospectus
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Disclosures
Investing involves risk. Principal loss is possible. Foreign investments involve additional risks, which include currency exchange-rate fluctuations, political and economic instability, differences in financial reporting standards, and less-strict regulation of securities markets. The Fund may invest in derivatives, which are often more volatile than other investments and may magnify the Fund’s gains or losses. Derivatives are also subject to illiquidity and counterparty risk.
To determine if the Funds are an appropriate investment for you, carefully consider the investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Funds’ summary and full prospectuses, which may be obtained by calling 1-833-4CULLEN. Read it carefully before investing.
The Cullen Enhanced Equity Income ETF is distributed by SEI Investments Distribution Co. (SIDCO). Cullen Enhanced Equity Income ETF is managed by Cullen Capital Management. SIDCO is not affiliated with Cullen Capital Management.
Neither Cullen Capital Management, SIDCO, nor their affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.
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