Against a backdrop of rising interest rates, inflation concerns, and market volatility, financial advisors seeking income solutions for clients are increasingly considering exchange-traded funds (ETFs) with covered call strategies. However, not all such ETFs are created equal, and understanding the differences among offerings can make a significant difference in portfolio construction and after-tax returns. The Cullen Enhanced Equity Income ETF (ticker: DIVP) brings a unique approach to the covered call space with a focus on value investing, tax-efficient income generation, and upside total return potential.
In an interview with The Wealth Advisor’s Scott Martin, Jeff Cullen, Managing Director at Schafer Cullen Capital Management, discussed how DIVP delivers a differentiated approach to generating income through a combination of dividend-paying stocks and selective covered call writing. The strategy’s balanced composition seeks to provide tax advantages compared to many index-based covered call strategies while preserving potential for capital appreciation—a methodology that addresses multiple client needs in a single solution.
Four Decades of Experience Meets Modern ETF Structure
With Cullen celebrating its 40th year in business, the firm brings substantial experience to its relatively new ETF offering. DIVP—“DIV” for dividends and “P” for premium—has been in the market for nearly a year but leverages investment expertise developed over decades.
Jim Cullen founded Cullen Capital Management with a value-oriented, dividend-focused investment philosophy that continues to guide the firm today. The investment approach behind DIVP has been successfully implemented in a separately managed account (SMA) format for 13 years, accumulating approximately $1.8 billion in assets—a testament to advisor confidence in the strategy’s effectiveness and staying power.
DIVP follows the same enhanced equity income investment approach as the firm’s SMA offering, holding the same securities but in a different vehicle structure. The ETF wrapper makes DIVP accessible to a broader range of clients and advisors who might have previously been unable to meet the SMA’s $250,000 minimum investment requirement.
For advisors who have historically preferred ETFs, the fund provides access to Cullen’s investment expertise in a familiar vehicle. This accessibility factor cannot be overstated—particularly for smaller accounts, retirement accounts, and clients who are taking required minimum distributions (RMDs).
A Differentiated Approach to Covered Call Writing
What sets DIVP apart from many popular covered call ETFs is its targeted options writing and the resulting tax implications for investors. Rather than writing benchmark-based calls, Cullen selectively deploys a covered call overlay on individual positions within the portfolio.
“Many of the strategies that have become very popular with advisors and clients write options on the index or an underlying index,” Cullen notes. “The issue here is that the majority of that income is then derived from option premium income, which is taxed as ordinary income or short-term capital gain.”
By contrast, DIVP’s approach generates approximately half of its yield from qualified dividends, which are typically taxed at lower rates than ordinary income. Cullen emphasizes that “the dividends are [qualified dividend income]. They’re taxed at the lower tax rate,” resulting in potentially more favorable after-tax yield for investors—particularly those in higher tax brackets.
The selective approach to covered call writing also preserves upside potential in the portfolio—a feature that differentiates DIVP from strategies that write calls against the entire portfolio.
Preserving Upside While Generating Income
Many covered call ETFs trade upside potential for income. DIVP, however, aims to help balance income generation with capital appreciation opportunities.
As Cullen notes, only one-third of the portfolio—between 25% to 40%—typically has covered calls written against it, leaving the majority positioned for growth. The strategic allocation is designed to allow investors to participate in market appreciation while still receiving enhanced income from the covered call strategy.
The Cullen portfolio management team first selects a portfolio of 32 large-cap value stocks with dividend growth potential. Then, the options portfolio manager decides which positions offer attractive option premiums based on volatility characteristics.
Portfolio managers frequently implement partial position coverage, writing calls on only a portion of a holding when they anticipate potential price appreciation. By partially covering positions, DIVP aims to maximize income while preserving opportunities for capital appreciation.
This measured construction allows the fund to retain exposure to potential stock price appreciation while generating current income through the covered call strategy. For advisors seeking reliable income without surrendering all growth potential, DIVP’s balanced approach represents a compelling middle ground among covered call strategies.
Preserving Upside While Generating Income
Many covered call ETFs trade upside potential for income. DIVP, however, aims to help balance income generation with capital appreciation opportunities.
As Cullen notes, only one-third of the portfolio—between 25% to 40%—typically has covered calls written against it, leaving the majority positioned for growth. The strategic allocation is designed to allow investors to participate in market appreciation while still receiving enhanced income from the covered call strategy.
The Cullen portfolio management team first selects a portfolio of 30–40 large-cap value, dividend-paying stocks that also exhibit dividend growth potential. Then, the options portfolio manager decides which positions offer attractive option premiums based on volatility characteristics.
Portfolio managers frequently implement partial position coverage, writing calls on only a portion of a holding when they anticipate potential price appreciation. By partially covering positions, DIVP aims to maximize income while preserving opportunities for capital appreciation.
This measured construction allows the fund to retain exposure to potential stock price appreciation while generating current income through the covered call strategy. For advisors seeking reliable income without surrendering all growth potential, DIVP’s balanced approach represents a compelling middle ground among covered call strategies.
Portfolio Applications for Financial Advisors
DIVP’s flexibility makes the fund potentially suitable for various portfolio roles across different client types. Retirement accounts represent a particularly strong fit, especially for clients taking RMDs. Income-seeking clients have been the primary investor for the strategy.
Designed with income-seeking investors in mind, DIVP provides predictable, bond-like income through monthly distributions. “When we made the ETF, we focused on making the distribution monthly,” Cullen shares. “We want people to get used to consistent monthly income that’s coming in to them in the form of distributions.”
The strategy may also serve as an alternative to high-yield bonds, offering potentially similar income characteristics but with a different risk profile and the benefit of equity exposure. Many investors view high-yield bonds as having equity-like characteristics with slightly lower risk, making DIVP a natural complement in income-focused allocations.
The value tilt in the portfolio also provides style diversification benefits when paired with growth-oriented holdings or index-based covered call strategies that may have heavier weightings toward technology and other growth sectors.
“We think we complement many of them,” Cullen says. “We can give you the value side of the equation. We have larger sector weights in financials and industrials, and our ETF can blend with other core or large growth covered call ETFs, like you normally blend a large-cap value and a large-cap growth strategy. We’re just doing it a little differently.”
Debunking Low AUM Concerns
Many advisors hesitate to utilize newer ETFs with lower assets under management (AUM) or limited trading volume owing to liquidity concerns—an issue Cullen directly addresses when discussing DIVP.
Concern over low AUM in ETFs is a misconception, Cullen explains. Unlike mutual funds, where large investments can create cash drag as portfolio managers deploy new capital, the ETF structure operates differently. When advisors place substantial orders for DIVP shares, market-makers reference the fund’s holdings, acquire the underlying securities in the market, and exchange them for newly created ETF shares.
The beauty of the creation/redemption mechanism lies in its efficiency and transparency. “We’re not handling cash, so I don’t have to deal with cash coming in to buy stocks. It’s just the securities that come in,” Cullen notes. This structural differentiator seeks to enable the advisor to deploy capital efficiently regardless of the fund’s size or trading volume, effectively removing one of the primary barriers to adoption for newer ETF products.
Understanding the distinction between ETFs and mutual funds can help advisors overcome hesitation about incorporating newer offerings such as DIVP into client portfolios, allowing investment decisions to focus on strategy merit rather than vehicle maturity.
Delivering Tax-Efficient Income
As income strategies continue to evolve, DIVP offers a modern approach to addressing client needs for reliable cash flow, tax efficiency, and growth potential.
This Cullen strategy represents more than just another income option—it embodies an evolution in how advisors can deliver income solutions without sacrificing growth potential. For income-focused portfolios, the combination of qualified dividends, selective covered call writing on individual stocks, and the inherent tax benefits of the ETF structure position DIVP as a distinctive offering.
For financial advisors, DIVP represents a compelling option backed by decades of investment experience and a proven strategy with a 13-year track record. As clients increasingly demand tax-advantaged income streams, strategies that balance current yield with potential appreciation deserve consideration in portfolio construction.
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For DIVP’s standard performance and top ten holdings, please click here.
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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
The Fund’s holding and sector allocations may change at any time due to ongoing portfolio management. References to specific investments should not be construed as a recommendation by the Fund or Cullen Capital Management to buy or sell the securities.
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 Fund is an appropriate investment for you, carefully consider the fund's investment objectives, risk, and charges and expenses. This and other information can be found in the fund's prospectus, which can be obtained by visiting https://www.cullenfunds.com/. Please read the prospectus carefully before investing.
The Cullen Enhanced Equity Income ETF is distributed by SEI Investments Distribution Co. (SIDCO).
