ICAP - ICAP: An 8.4%-Yielder For Average Joe And Jane

Summary

• Since inception, ICAP has outperformed JEPI and SPY, and the outperformance is even more pronounced on a YTD basis.
• ICAP is still just a baby, with just under $46 million of assets under management.
• Sector selection is also an important component of the investment management process.

Just around a year ago, I published an inaugural article on the InfraCap Equity Income Fund ETF ( ICAP ), a new dividend-focused exchange-traded fund ("ETF") that screens as an attractive means to position for this market environment.

In addition to ICAP and two other ETFs, Infrastructure Capital Advisors manages private capital in a series of hedge funds managed by Jay Hatfield, who has an extensive background across all areas of finance.

As an investment banker, research director, portfolio manager, and co-founder of an NYSE-listed company, he has gained a broad perspective on the U.S. financial markets.

At a high level, ICAP is an equity-income fund aimed at providing a high and consistent yield with the opportunity for capital appreciation.

Due to its sector allocation, diversified stream of income (~85 companies including equity and preferred shares), and its institutional-style active management, ICAP is a fund that is well positioned to succeed in the upcoming market conditions.

Since inception, ICAP has outperformed JPMorgan Equity Premium Income ETF ( JEPI ) and SPDR S&P 500 Trust ETF ( SPY ), and the outperformance is even more pronounced on YTD basis as shown below:

ICAP is still just a baby, with just under $46 million of assets under management ("AUM"), however the dividend yield of over 8% is mesmerizing, especially when you consider dividend yields for comparable ETFs:

ICAP invests primarily in high dividend stocks across all sectors. Seeking current income lends itself to a traditional value focus, resulting in a portfolio with low P/E Ratios and high dividend yields supported by strong dividend coverage.

The fund invests in equity securities that may include common stocks, preferred stocks, and convertible securities. ICAP generally favors larger capitalized companies, however, may opportunistically select equity securities of any market capitalization.

Active Management

Active management is at the core of the strategy. ICAP actively manages portfolio assets pursuant to a variety of quantitative, qualitative, and relative valuation factors.

As part of its quantitative analysis when selecting securities and constructing the portfolio, ICAP will evaluate potential investments with respect to key variables, including, without limitation, the competitive position of a company, the perceived ability of the company to earn a high return on capital, the historical and projected stability and reliability of the profits of the company, the anticipated ability of the company to generate cash in excess of its growth needs, and the company’s ability to obtain additional capital.

ICAP will also consider data points such as current yield, market capitalization, financial risk profiles, and relative values based on various time horizons. In conjunction with these quantitative assessments, ICAP is a bottom-up manager, making investment decisions based on company fundamentals rather than volatile macroeconomic factors. This dynamic management approach helps ICAP to filter noise in changing market environments .

Sector Selection

Sector selection is also an important component of the investment management process. ICAP will favor sectors and industries that it believes are undervalued on an intrinsic and relative basis.

For example, ICAP may overweight issuers in the real estate sector over the financial sector , when the market has oversold a real estate sector or has overbought a financial sector.

In addition, to reduce volatility, ICAP may add preferred equity securities , which, under stable market conditions, have historically lower volatility than common equity securities. When constructing and maintaining the portfolio, ICAP will consider macroeconomic factors and outlook with the goal of achieving diversification and the Fund’s objectives.

The fund currently has its largest exposure to financials due to the attractive yields produced by the sector as well as banks’ natural ability to produce higher cash flows in times of higher interest rates. ICAP also uses options strategies to generate and reduce volatility of income and generally is written on about 35% of the portfolio.

Opportunistic Strategies

ICAP may purchase and write put and call options in an effort to:

(i) generate additional income and reduce volatility in the portfolio,

(ii) remove or add securities from the portfolio,

(iii) facilitate total return opportunities, and

(iv) hedge against market risks or other risks in the Fund’s portfolio. ICAP may also deploy modest leverage, depending on market conditions, to maximize income and pursue total return opportunities. The fund uses leverage to purchase preferreds and generally maxes out at 25% of net assets.

Top 10 Holdings

I recently interviewed Hay Hatfield and he explained (emphasis added):

"It's highly diversified, just like the S&P, although it has way less tech than the S&P. It's the higher dividend securities that are large cap. The great thing about it is that they are mostly household names , particularly if you follow...

...we also have Coke ( KO ), Southern Company, Chevron ( SO ), these Mega Cap, a lot of them are Dow stocks. We have Dow itself, great dividends, 3% to 6% dividends, very liquid, ultra-high market cap. So a safer asset class. I a lot of value."

In Closing...

iREIT has been active covering other ETFs such as...

• Pacer US Cash Cows 100 ETF ( COWZ ) 1.9% Yield
• Vanguard Real Estate ETF ( VNQ ) 3.7% Yield
• JPMorgan Equity Premium Income ETF ( JEPI ) 11.9% Yield.

ICAP yields 8.4% and the expense ratio is .80%. As mentioned above, InfraCap Equity Income Fund ETF has around $45 million under management. I just bought a modest tracking position, thus the reason I disclose.

For further details see: