Transcript:
Caroline Woods
Income has been top of mind for investors lately, especially with market volatility rising and interest rates still relatively high. Joining me now for this week’s ETF spotlight is Adrian Holford, chief investment officer of multi-asset Strategies at Westwood. Adrian, thanks so much for being here at the desk.
Adrian Helfert
Thank you for having me.
Caroline Woods
All right. So let’s start. Big picture. We’re talking income opportunities. Where are the best places to get those opportunities right now?
Adrian Helfert
Abundant. Some more attractive than others. When we look at income opportunities, we think about bonds. Things like corporate bonds where the the default compensation you get spread income is near historic lows. Still, even with the volatility we see now. So you start looking in other areas. And of course we get dividend yield from equities. And that return of capital is reasonably attractive.
But the growth has certainly been in areas where it’s technological innovation. These are companies that are pumping capital back into their companies in order to generate new revenue opportunities, not delivering it directly as an income to shareholders. So when we look across that spectrum, how do you receive income? Well, one way is also covered. Calls. Covered calls for call are where I go out and sell a call on a company.
I get premium income for that. I’m involved in the growth of the company, and that’s how I package up something that might be a growth company with income from premium income, and I participate in its upside. That, to me, is one of the more attractive areas of the market right.
Caroline Woods
Now because for for for quite some time, although I guess some tech companies, for example, do pay a small dividend, it’s either you get the income or you get the growth. So this is a way to essentially get both.
Adrian Helfert
Very much so. And of course, you know, the narrative of the market over the last several years has been the extraordinary growth of these tech companies, in part because of AI, in part because of the picks and shovels of just building out infrastructure for that. So let’s take Broadcom for example. Broadcom pays a 80 basis point dividend yield kind of a smidgen.
Not even as much as the S&P 500 on average. So an income based investor would not normally look at a stock like that. But if you’re able to package that up sell a 15% out of the money, call on Broadcom. You can generate a 13% dividend yield. Or I should say an income yield while holding something with a growth opportunity that participates in the growth of the market.
Caroline Woods
So you did package that up with your ETF. The enhanced Income Opportunity ETF, ticker symbol Y l d w. So you talked about how the the strategy works a bit. But tell us a bit more about the fund specifically.
Adrian Helfert
Like you asked about income opportunities and where they might lie. One of the great things as an income investor is being able to participate in other areas of the market when they become more attractive. Make no mistake, at some point this market is going to provide an extraordinary opportunity for areas like corporate bonds. When we see a default cycle come, when there are the opportunities that are overpriced or overcompensated for that income potential, and we can participate in that.
So we have five different income buckets. And of those five different income buckets that include real estate investment trust and MLPs and common equity dividend yield plus covered calls plus high yield bonds. We can migrate to each of those to where the best opportunity lies. Now, when we do that, we are looking for, a target level of income that says we’re going to we’re going to prioritize this but not have that style bias.
And there’s two things about income investors that are really important. Number one, your standard income is short volatility. You want volatility to drop. And that’s a benefit to yourself.
Caroline Woods
Which is not happening right now which.
Adrian Helfert
Is well.
Caroline Woods
I guess it is from the 30 level but it’s still elevated.
Adrian Helfert
Yes. And as we see that then of course, when you use the covered calls as an offset in that, that five pieces of the, of the stool that provide you with an opportunity, then to say, okay, well actually I want opportunity, I want volatility to rise. When volatility rises, I can reset a covered call. I can sell that call at a premium that’s higher than when volatility is lower.
So it reduces the factory exposure in my fund. It increases my risk adjusted return. So for any of those looking at that opportunity that’s very important.
Caroline Woods
But obviously we know in the options market there’s always risk associated with it as well. So how do investors know when to lean into risk and when to kind of step back from it.
Adrian Helfert
Great question. And when you’re looking at covered calls that oftentimes you see something that is based on the index. And when you’re based on the index, you’re leaning on just the very top level macro risk on or risk off. And so you’re relying on the signals that we get in the economy, the things that are happening over the course of previous times when we have a geopolitical risk rising or we have a narrative from artificial intelligence eroding moats, that’s your your standard up and down.
When you’re able to take advantage of an active solution that says, this is the best company I talked about, Broadcom. They have an extraordinary opportunity of participating in growth significant upside. And at the same time there’s a lot of uncertainty about that. So you can clip a good coupon versus other companies. How do investors know they you need to be a good fundamental analyst, I believe, to capture the best opportunities.
I know this is the company with the best supply line, the best contracts in place, and as well the best offer, the best uncertainty to take advantage of the income.
Caroline Woods
You’ve been using Broadcom as an example. But overall so far in 2026 tech has been very much out of favor. It’s definitely a change. We’ve seen this rotation into other obviously sectors like energy and industrials and materials and staples has done very well. Do you think that that’s a short term rotation or do you think that we should get used to growth not necessarily being in favor.
Adrian Helfert
Great question. I think that it is a short term rotation. The picks and shovels of the build out is going to be technological innovation is here. Now we’re talking about capital appreciation of equity markets rising. The erosion that is happening is going to happen with certain areas of the tech market. We’re already seeing that with the so-called SAS Armageddon or the SAS apocalypse, the software names that maybe their moat is eroding because of the vibe coders that are creating a new product.
The same thing is happening in the industrial space. The same thing is happening in areas of the financial space. That is a potential higher risk for these companies. That’s that’s two opportunities. Number one, that is well, if uncertainty is higher about their future and I have a good fundamental outcome, then as somebody that is invested, but fundamentally with taking advantage of the income from covered calls, that’s a great thing and great opportunity for me.
Areas of the market will feel appreciation as a result of this extension out to, for instance, small caps and mid-caps that take advantage of margin expansion and rationalization. It needs to be a measure, of course. So we see a workforce that is still employed and not just the machines that are employed, but at the same time, we could see opportunities in the market.
I believe we will. I believe technology is experiencing a change of the guard, if you will. But technology infrastructure is still extraordinarily attractive.
Caroline Woods
Okay, so what’s the biggest mistake that you see investors making as they go about building an income portfolio?
Adrian Helfert
It’s not. Well, the biggest mistake truly is not realizing that your exposure is being short volatility only. And as you do that, the biggest mistake is managing to a target risk exposure and being an income investor. Then what happens when volatility drops? You take more risk. What happens when volatility drops again? You take more risk because you’re targeting a risk exposure.
That’s the biggest mistake is you need to have a fundamental value for what you’re invested in, whether that’s a corporate bond and what the default compensation you receive for that spread is. And so the probability that this company goes belly up, that’s, that’s an in the weeds kind of analysis that good investors do as opposed to simply targeting risk and targeting income.
I get asked day in day out, well can you target an income. Can you target a risk for me and tell me what that’s going to mean? I can tell you an estimated and indicated, but the market changes. And if I simply targeted income, that’s where the world ends and tier then you end up in that possibility of, well, increasingly getting riskier and riskier as volatility drops until it doesn’t.
Caroline Woods
And it kind of goes against the notion that income opportunities are that the safer place it does.
Adrian Helfert
And this is why, you know, when we say income opportunities, myself, I very much believe in tactical asset allocation. We see opportunities to move capital around the market when potential for capital appreciation income is better in one area versus the other. Suddenly we see that in low quality bonds versus high quality bonds. Right now, high quality bonds are trading at at levels that are, for the past 25 years, about the second percentile, meaning they’re very rich.
And I’m looking for opportunities a little bit more in low quality bonds. You might think that that doesn’t make a lot of sense, but that’s the valuations that are there in the market now. So the opportunities that present. So when we look at that as an income investor. Number number one. Yes moving capital around the market makes a lot of sense.
And number two, as I said, income investors are generally pushed into a style bias. It’s a value. Style bias is an early stage capital return. Forecast. We’ve coming out of this new paradigm. We talked about tech where capital return to investors is not as high, or the growth potential, the capital appreciation potential of the market is significant.
You don’t want to miss out on while you want that income potential. That’s where we find other, other ways to take advantage of it.
Caroline Woods
Okay, the ETF is Enhanced Income Opportunity ETF y LW thank you so much for joining us. Really appreciate.
Adrian Helfert
It. Thank you for having me.
Caroline Woods
All right. That’s Adrian Helfert chief investment officer of Multi-Asset strategies at Westwood.
