Income Equity focuses on growing managed accounts via diversified, income focused strategies designed to outpace inflation while preserving opportunities for future capital growth.
This is accomplished by selection of sector and index securities according to current relative value and writing options around the position. Income is created by a combination of call writing and put writing on a particular sector or index. A maximum 25% of a managed account is allocated to a given sector or index security. Instruments used in each market are highly liquid ETF’s, ETNs, UIT’s, etc. with minimum average daily volume requirements to assure excess liquidity. ACI does not use margin in managed accounts.
Put writing is either defined risk via a combination of a long and short put option for managed retirement accounts, or cash secured in non-deferred accounts. Puts are only written on sectors or indices ACI wants to own in client accounts, and only at strike prices below the historical average valuation of a given sector or index, with a preference for put writing at a price 10% or more below the average historical valuation of the targeted security.
Using this combination of covered call and secured put writing lowers beta in managed accounts while delivering income and the possibility of future capital appreciation.
When ACI can acquire a target sector or index significantly below the historical average valuation, call writing may be delayed until the acquired security moves up in value. ACI may also fully invest the allocation for that sector at that price level rather than put writing, and look to generate the income exclusively through call writing once the security reaches the targeted price level.
This is a relative return strategy which is inherently more conservative than simple buy and hold. It may under perform bull markets and outperform bear markets. It is designed to generate a series of small but meaningful realized returns on a consistent basis, or “growth through cash flow.” ACI calls this real return investing.