Van Hulzen Covered Call

Van Hulzen Covered Call

Strategy Overview: The Van Hulzen Covered Call Strategy (the Strategy ) seeks a total return with less volatility than equity markets in general. In pursuing its objective, the Strategy targets superior long term risk-adjusted returns versus long-only equities. The Strategy invests in large cap companies that the portfolio managers expects to produce strong return on investment, pay regular dividends, have below-average leverage, attractive valuations, and a consistent shareholder value-oriented track record. The Strategy predominantly invests in dividendpaying companies and uses call options in an attempt to create incremental income and reduce portfolio volatility. The Strategy seeks to make income a more significant component of the total investment return and targets long term risk-adjusted returns versus long-only equities. The goal is a portfolio that generates a higher than average annual income with a target of 6-8% annual income.

Strategy Philosophy: The manager is a fundamentally driven. The manager uses call options to add income and protection, and to exit their positions at fair prices. The primary goal is to own a portfolio of world class companies that have proven business models and shareholder friendly boards. Issuing dividends and buying back shares are two actions that are shareholder friendly. The investment process leverages 2 sources of intellectual capital. The first one is Holt of Credit Suisse. Holt is an objective, fundamental framework that determines shareholder value creation combined with a valuation work. In this framework the manager seeks companies that meet certain criteria: Stable or improving Return on Capital Low debt Above average dividend yield Proven business model Large cap Undervalued The managers screens 5000 US names. The above filter allows around 130 stocks for a deeper analysis. On the 130 names the manager does a detailed cash flow analysis and determines their price targets. The second source of intellectual capital is a proprietary risk analysis. The managers charting analysis work seeks to identify characteristics of price trends over distance and time in order to establish key support levels. In the risk work the manager stress tests the watch list and looks for those ideas that are most favorable. On every stock the manager holds in the watch list it measures the downside risk. Stocks that have a favorable risk/reward ratio make it to their portfolio. Of the watch list of 130 names the manager selects a portfolio of around 50 names. On those 50 names the manager adds options that match their total return target.vam seeks to own high quality corporations and to use covered calls as an exit strategy at our fundamental valuation target. Our portfolio is comprised of high quality companies with consistent cash flows, consistent dividends, and lower-than-average debt. These stocks tend to outperform during weak markets.

Portfolio Construction: At the sector/stock level, the team measures upside potential and downside risk. The stocks that have the highest ratios have the largest weighting. So the stock with the highest upside potential is not necessarily the largest holding. A stock with 30% upside and 30% downside risk (ratio 1.0) would get a lower weighting than a stock with 15% and 10% down side risk (ratio 1.5). The team aggregates all bottom up. Sector weights are determined by the number of qualified stocks in each sector. The team compares the sector weightings and stay within tolerable deviations of the weightings of the S&P 500 index.

Risk Management: VAM has developed an internal risk model that analyzes each investment holding, and allocates capital based on the size of the risk of each investment holding. The process also seeks to establish tolerable downside risk for each security rather than just a fundamental upside target. This provides the team with a range of potential outcomes. Aggregating all downside exposures provides the team with a mandate level risk total that is managed for each mandate model. On the stock level that means that the team measures upside potential and downside risk. The stocks that have the highest ratio have the largest weighting. So the stock with the highest upside potential is not necessarily the largest holding.

Company Overview: Van Hulzen Asset Management (VAM) was founded in 1998 by Craig Van Hulzen. The business was started with one investor and grew for the first 10 years primarily through client referral. Van Hulzen Asset Management manages $539 million in AuM. VAM is 100% owned by active participants in the business. In June 2011 Wedbush Inc. bought a minority stake in our firm. Two passive shareholders sold their shares to Wedbush Inc. The majority is owned by the portfolio managers and investment committee members. VAM is a SEC-registered, fee-only investment advisor, with asset management and wealth management divisions. We offer an active covered call strategy in separately-managed account format and Van Hulzen also is sub-advisor to the Iron Horse Covered Call Fund (IRHIX). Van Hulzen also offers active investment-grade fixed income strategy and the wealth management unit runs a proprietary asset allocation program. The majority of Van Hulzen Asset Management clients are high net worth families and institutional clients.

Management Bios: Craig Van Hulzen started the business in 1998 and oversees the investment process. Craig is a former risk management consultant to numerous state pension plans. He has been featured in Business Week, Fortune Online, Pensions & Investment, Financial Planning and USA Today. Craig holds a B.A. in Business Finance from Point Loma Nazarene University, where he is a member of the Board of Trustees, serves on the finance committee and is a member of the University s Foundation Board. John Pearce is Managing Director and minority owner of Van Hulzen Asset Management. He is comanager of the firm s covered call strategy. John has worked with Van Hulzen Asset Management since February 2008. Prior to joining Van Hulzen, John was a Director in the Investment Banking division of Credit Suisse Securities, where he specialized in intrinsic value analysis and worked with both large corporations and institutional clients. John holds a B.A. in Economics from the University of Virginia and a M.S. in Accounting from the College of Charleston. He is also a Certified Public Accountant. Stefan ten Brink is a Managing Director of Van Hulzen Asset Management and joined the firm in January 2011 from Petercam Asset Management in Amsterdam. He co-manages the Iron Horse Fund and oversees the global portfolio management process. Stefan has 17 years of investment advisory experience and co-managed the equity portfolio of the Ahold Pension Fund prior to joining Petercam. Stefan holds a degree in Logistics & Economics from Arnhem Business School and an MSc in Business Economics from Nijmegen University. Stefan is a Certified European Financial Analyst (CEFA).