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Amplify ETFs’ DIVO hits sweet spot 

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Kevin Simpson is CIO of Capital Wealth Planning and portfolio manager for the Amplify ETFs’ Amplify CWP Enhanced Dividend Income ETF (DIVO), a high dividend ETF which has performed extremely well relative to the markets this year, doubling its assets to USD2 billion year to date.

Simpson explains that DIVO launched in December 2016, as a clone of a strategy that he has been running since 2012, as an SMA.

Collectively, the product has USD7 billion in assets.

“We provide a strategy that is simple,” Simpson says. DIVO invests in a portfolio of high-quality large-cap companies with a history of dividend and earnings growth while utilising a tactical covered call strategy on individual stocks. DIVO’s current distribution rate is 4.72 percent, and the 30-day SEC yield is 1.90 per cent (as of 10/31/22). Distributions from the fund are made on a monthly basis.

“People getting closer to retirement appreciate investing in stocks that pay dividends, and have a history of increasing those dividends, giving you a raise each and every year to offset some of those inflationary pressures,” Simpson says.

He sells covered calls, using them tactically, versus, he says, the approach of most of the firm’s peer groups who will systematically use them to generate income.

“We use it as a means of harvesting volatility,” he says. When volatility is high, there is a greater premium when writing covered calls but in the absence of volatility, the firm backs away from call writing. “They are not written for every name, every month, but strategically and tactically when it makes sense to do so,” he says.

“In recent years, volatility has been somewhat muted which caused us to write fewer covered calls. We expect that could change moving forward,” he says.

There is generally an inverse relationship between higher volatility and the market, he notes. Higher volatility tends to happen in falling markets. As sellers of covered calls, it works for the advantage of the portfolio when they are more expensive.

“I believe that the demographic of someone who benefits most from this product is someone close to retirement or in retirement which could turn out being longer than their working careers,” he says.

“Regardless of where inflation is, it is still a reality that we must face.  It won’t go away quickly so the ability to have a stock portfolio that will appreciate and increase your cash flow is a very desirable strategy for the retiree.”

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