Liquid Alternatives Manager of 2022: Capital Wealth Planning

Liquid Alts covers a lot of territory, 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 portfolio is an enhanced dividend income strategy that also has covered calls in its quiver, said portfolio manager Kevin Simpson. “We endeavor to capture 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 that Capital Wealth did “an excellent job in delivering strong and consistent performance, balancing total return and income generation, and conducting active option overlay.”

The covered call strategy isn’t similar to many that buy and hold. Simpson said they “have a tactical approach to covered call writing, which tends to harvest volatility so our process will engage in more covered call writing when volatility is higher and we’ll dial back when volatility is lower.”

Further, as the analysts pointed out, Capital Wealth “manages its options positions, including closing out or rolling forward before their expiration, to potentially enhance performance. In contrast, many covered call strategies adopt a passive approach in option overlay such as ‘write-and-done.’”

Typically, said Simpson, covered calls are written on 30% to 60% of stocks in the portfolio. To illustrate how effective covered calls can be, Simpson explained that “active management is the thesis behind what we do and covered calls sometimes make it even better,” he said.

One example is a position in which they wrote a covered call on Caterpillar. “We had the covered calls written about $235, after acquiring the stock at $200. We got called away at $235, and the stock continued to go higher. Ultimately, CAT peaked out at $245 before rolling over and trading down to $200 again, so we were able to reenter our position,” Simpson explained.