The IINC ETF: Dividends, Options, and Real Liquidity

Diane King-Hall (0:01)

Welcome back to The Watchlist. I'm Diane King-Hall. Time now for the ETF Watchlist. Joining me now is Alex Peters, Chief Investment Officer, Hohimer Wealth Management. Alex, thank you so much for joining us today. All right, let's start out with your ETF.

I'm going to double-i-n-c. Talk to us a little bit about it and what gap in the market you're trying to fill with this.

Alex Peters (0:23)

Yeah, great to be with you. We launched i-i-n-c after doing a careful evaluation of the monthly income ETFs that were available, in particular those that use options to generate some of the income.

We really felt that there was a gap in the marketplace for a fund that not only pays an attractive dividend, but tries to do it while minimizing volatility and while providing extreme transparency in terms of its holding. So we don't own any structured notes or derivatives that would be difficult to price. Everything we own is either common stocks or the individual options based on common stocks.

Diane King-Hall (1:06)

So what is one getting exposure to via this ETF?

Alex Peters (1:11)

You're getting exposure to diversified across sectors, just the S&P, the 11 sectors, we have exposure to all of those.

And we're really trying to not only, as I said, provide a good dividend, but also provide a lower beta. And the portfolio of stocks that we own has a lower beta. And then also the option overlay also produces that beta even further.

Diane King-Hall (1:36)

And is the idea of providing a lower beta to reduce risk here?

Alex Peters (1:40)

Yes, lower volatility, lower risk. That's what we think. There's a gap in the marketplace for a product that provides that.

Diane King-Hall (1:49)

Okay, now investors are often looking for income. How are you all differentiating from other ETFs that may be similar in this space? Or is there other opportunities where they're finding that income, say, investing in a single stock name?

Alex Peters (2:05)

Yes, yes, that's true. How we try to differentiate is, first of all, paying an attractive dividend.

And a lot of our competitors are using structures, structured notes, things like that, that create 100 percent taxable income. We're looking to reduce the tax bill to our shareholders as much as we can. So when we have an opportunity to take a loss to tax harvest, we're going to do that. So we think that we're not only concerned about what the pre-tax yield is, but what the post-tax yield is.

Diane King-Hall (2:40)

OK. And talk to us a little bit about the impetus for the creation of this ETF. Obviously, it wasn't just about finding another opportunity to find income.

Who is this for? What's the demographic? Was that part of the inspiration behind this?

Alex Peters (2:59)

Yes. So, the demographic is any investor looking for income. As you know, that's quite a large group of investors in the marketplace.

We started doing our own custom structured notes here when the firm was founded, and it's something that started off where we only had one note that we would do. Now, we have eight to ten at all times, and it was very popular with our clients. We really saw that investors are looking to have that attractive income stream like our ETF grades. But one thing we also learned with structured notes is that there's a cost to them, they're illiquid, the pricing isn't always accurate. So, we thought, why not do this with common stocks and options that are traded on exchanges so that there's complete transparency and daily liquidity for anyone that invests in the fund.

Diane King-Hall (3:54)

I'm glad you came back to that word transparency because it sounds like you mentioned that's one of your objectives.

And I know from going through some of your notes that some of that came from private credit. I imagine some of your clients may have had some exposure or those coming to you had exposure to private credit and learned some hard lessons. So tell us a little bit more about the objective when it comes to transparency.

Alex Peters (4:16)

Yes, we want somebody when they pull up the fund to look at the holdings and understand them, you know, anyone can understand them. They can see the stocks that we own. They can see the options that are and what stocks those are on. You know, a lot of times when you're looking at structured note portfolios, you pull it up and it won't make a lot of sense to you. You won't really understand the terms of those notes.

And it's just difficult to really have a true understanding of what you want. So we really wanted to bring that to the marketplace. And, you know, in addition to some of the things I mentioned, the hard and the quiddity, but just the transparency so that people can really understand what it is they're invested in.