Wednesday, August 23, 2023
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Madison Fires Off New Covered Call, Income-Growth ETF

In the investing world, stability and performance are often thought of as mutually exclusive. That doesn’t stop some products from trying to bring them together, though.   

Investors seeking steady income and long-term growth have a new combined strategy exchange-traded fund (ETF) to sample. 

Kansas-based Madison Investments debuted a new active ETF on the New York Stock Exchange Arca on August 22 – the Madison Covered Call ETF (CVRD). The fund fuses an active stock and covered call writing strategy to generate consistent returns and a high level of income and gains from options premiums and dividends.

CVRD aims to buy undervalued mid- and large-cap companies at a steal compared to their projected future price target. It then sells covered call options on a large part of the holdings. 

Like other recently launched, actively managed ETFs, it aims to combine both long-term capital appreciation and strong dividend yield in a one-click product. 

“We have seen growing demand for actively managed ETFs in 2023,” said VettaFi’s Todd Rosenbluth in a note on the launch. “It is great to see Madison Investments build out a suite of products to meet advisors in the arena they want to invest.”

The fund has started out with an assemblage of equities from industries as diverse as big tech to entertainment and healthcare. The fund’s top five holdings include Microsoft (3.66% of total holdings), Las Vegas Sands (3.49%), T-Mobile (3.39%), Danaher (3.27%), and Medtronic (3.12%). 

Independent Manager

Although Madison Funds has been operating for nearly five decades and has over $20 billion in assets under management (AUM), it is a newcomer to ETFs.

The firm, which has until recently been solely offered mutual funds, launched its its debut ETF just one week ago on August 15, the Madison Dividend Value ETF (DIVL), making CVRD represent the firm’s second ETF.

The firm is fully employee and founder-owned and claims its independence ensures no external influences interfere with managing client capital. It also says it invests “alongside” its clients, claiming portfolio managers have “meaningful personal capital” at stake in their own strategies.

Madison’s foray into active ETFs is an industry trend. 

Getting Active 

Active ETFs have been growing as an asset class in recent years. As investors move beyond the orthodoxy of purely passive investing that characterized the ETF movement for decades, issuers are experimenting with their form to see how flexible the asset class can be. 

Lower fees, little to no discounts on net assets value, and streamlined accessibility through exchanges have formed a trifecta of factors that have made these funds alluring more investors, according to Financial Times’ David Stevenson.  

Today, the U.S. leads in ETF adoption compared to other regions like Europe, while most ETFs tend to be heavily concentrated in the ESG (Environmental, social, and corporate governance (ESG), and fixed-income space. 

Data from Morningstar shows that capital is flowing into actively managed ETS at a faster rate than both passive ETFs and actively managed mutual funds this year.  

CVRD has an expense ratio of 0.90%. The fund is currently trading at around $20.



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