Q3 2025 XAI Madison Equity Premium Income Fund Earnings Call
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The you know, the the Magnificent 7 stocks the you know, the large uh growth uh growth Mega cap growth stocks out there. They did reasonably. Well, not all of them did well in the third quarter. But they, you know, they were continued to be a an important driver of returns Tesla's up. 40% Google's up 38 Apple 24, Nvidia up 18. So these clearly had a big impact on overall performance. The market was up 8, just a little over 8%, the S&P 500
But others, such as Microsoft which was only up 4% meta.
Amazon, which were flat. So not not all of them. The, the, the mega caps contributed, but they had enough of a contribution to make a significant difference.
Overall, the style.
Um, uh, breakdown was that high beta stocks significantly outperformed?
Most other styles and high-risk stocks. In other words, stocks with no earnings or Andor a high, uh, short interest, uh, also outperformed. So it's clearly been a risk on market. And I think we could have said the same for most of the second quarter as well. So it's, it's really been more of the same as the markets continued to make new highs.
Through the end of September. Um, and we've only just in, in recent weeks, in our in October, uh, starting to see some shakiness come out, um, because valuations have gotten so high. So, some concerns about valuation risk are starting to permeate through the market now, but those were the key drivers, um, from a, from a fund perspective, uh,
you know, with the the fund did reasonably well in in such a an environment where
You know, a hedged equity uh, fund utilizing covered covered writing, you know, wouldn't wouldn't it be expected to keep up in it in such a Raging Bull Market, um, but the fund was up 4.8% in a market that was up 8.1%. We participated in approximately 60% of The Upside. Um, our primary Benchmark is the S&P buy right index, the bxm index and that was up 3.5. So we we, we, uh, we outperformed
That Benchmark, uh, in third quarter. And that's the third consecutive quarter that we've been able to do that. So relative to that Benchmark. We're we're performing quite well.
Overall with the market. It's uh, it's been more challenging as we are giving up some of the upside in the portfolio. In order to provide more downside protection,
Uh, sector allocation has been a a headwind for the fund because the, the leading sectors again are the sectors that hold these these uh, Mega cap growth funds. So the tech sector communication Services. Consumer discretionary, they all vastly outperformed and those 3 sectors alone,
Um, made up 81% of that S&P 500 return.
So, all of the, the other 8, sectors combined, only made up 19% of of the return. So, if you weren't in those sectors and overweight, you really had a hard time keeping up. Even if you were long only, um, on the flip side,
The laggards were some of the more defensive sectors out there as you'd imagine Consumer. Staples was the only sector that was negative.
Um, and then, you know, laggards such as healthcare materials, real estate, um, more traditionally defensive areas that one would expect to lag in such a strong market. So, um, you know, we have been underweight from a fund perspective in those high-flying.
A higher risk, sectors. And, uh, that was 1 of the reasons. We weren't able to keep up with the, um, with the overall Market, uh, obviously,
And uh, we continue to be positioned for what we think is going to continue to be a very volatile period going forward.
Thank you Ray very, very helpful.
Moving. Maybe a little bit into, you know, kind of some of those specific Holdings and maybe looking at the top 10 Holdings here, um, can you kind of describe your conviction in, in the top 10? Obviously, the portfolio is relatively concentrated on that Equity side with, you know. Um, 40 total Holdings, uh, Equity Holdings and, uh, the top 10 accounting for 33% of the portfolio. Um, so I think it might be good to, to describe to investors what positions, what makes these positions attractive, uh, to MCN strategy. And then, if there were any notable additions, or, uh, removals from the top 10 this quarter.
Yeah, that's all the top 10. Clearly for us, you know, we, we, uh, we operate on a, on a conviction basis with uh, with larger positions being our, our most uh, the areas where we have the greatest conviction and this conviction stems from a number of of uh underlying factors. You know, Market leadership, uh free cash flow generation.
Strong balance sheets, uh, and valuation. Uh, so in all of these cases, those are the commonalities between, um, many of these Holdings even though they may may, um, operate in in various sectors of the economy. So, the majority of the top 10. Um, now now I should mention that, in, in this kind of strategy where we do have option, assignments occurring on a regular basis, month-to-month, um, you'll see a lot more movement around the top 10 than you would in Long only fund where you can simply just buy and hold, um, uh, individual Holdings. Um, so you, you'll see a little bit more movement, but, but by and large the, the companies that are that were in in the top 10 at the end of the last quarter, um, and it the top 5 in particular are are are the same are very, very similar. Um, you know, with, you know, Las Vegas Sands, uh,
AES, the utility company; Danaher; American Tower; and Conaco remain in the top 10.
Compared to the June quarter. Uh, there are a few change, there were a few changes, uh, over the quarter and, um, particularly the bottom half of the top 10 usually gets moved around a little bit more because you have some stocks that out that perform well in a quarter and they get bumped into the top 10 and Others May lag a little and get bumped out. So you have some small movement there. Um so for example Hershey was up 14% during the quarter and it edged up into the top 10 Agilent.
The Healthcare Company you know was up almost 10% it edged up into the top 10 and we had a few um that moved down Matador resources.
Permian oil and gas um ENT company uh moved down as as uh, you know, as I mentioned earlier oil prices were down during the quarter 4% and then affected, most of the energy complex.
So it moved out of the top 10. Um, and then we we have
Others where we're adding to existing positions that may not have been in the top 10 that move into the top 10 and examples of that. During the quarter would be, uh, Pepsi which we added to our position in, uh, in September. Uh, we think it's a, you know, it's a terrific globally branded company. Uh, and the valuations have come come down to a level where we feel very comfortable adding to it, uh, for future growth. And we and it it bumped into the, uh, the top 10, um, as well as Honeywell on a portion of our Honeywell position.
Was called away in July, uh, at 230, a share by September. The stock had weakened down to around 210 and we bought back. Not only the shares, the amount of shares that we had previously, but we added more to it. Uh, so our position in hunnewell actually increased at a lower price and we bumped that into the top 10 as well.
Uh, you always have some stocks that get called away completely; in our case, uh, BHP Billiton.
Was a our second largest holding in the fund at the end of June. Um, during the quarter with gold prices, rising significantly, uh, Beric mining was up 55% in the quarter and uh and it got called away in 2 separate uh transactions 1 in July and 1 in September. Uh, so that's no longer in the portfolio and, uh,
and on the flip side, we added
Quarter CME is, uh, in the financial sector. It's an index. Um, essentially a derivative index company they owned Chicago. Mercantile Exchange in New York, Mercantile Exchange the Chicago Board of Trade the comx, the, the commodity exchange, and they're they're the most active player in the interest rate and commodity Futures market, and it tends to do well in volatile environments. Uh, so it's a stock that we would expect as volatility continues. More players out in the market. Not only speculators but industry players are looking to hedge and um, you know, particularly with the volatility as as related to tariffs
Hedging activities of increased, and and CME benefits from that kind of environment. So even in a volatile environment, we expect to see a need to hold up very well. So um that was added and that uh New Edition um brought it into the top 10. So those are those are the changes but but generally our our larger positions have remained there and our conviction levels remain very high there.
Thank you, Ray.
just talking a little bit about, um, valuations, you mentioned it in your, um,
you know, as you were talking about your conviction levels and kind of the underweight to some of those high-flying sectors, um, obviously valuations are near historic highs. Um, and the S&P, 500 is highly concentrated in those largest stocks, um, very top-heavy compared to, um, historical, uh, numbers and kind of weights. And those in that top, uh, those top Holdings in the S&P 500, do these market dynamics concern you, and how does that shape your outlook for covered call strategies heading into 2026?
Yeah, it is. It is quite concerning, um, you know, both the valuation levels and the uh, the concentration levels that are really unprecedented at, at at the current time,
um,
valuations right now in the market looking at, you know, a 12 month, forward-looking earnings projections,
Uh, is near near near the, the levels that we saw at the peak of the.com, bubble back in in 1999.
Uh, not quite there just within within 4 or 5% it. It's very, very high. I think the peak was somewhere around 24, a little over 24 times. We're right now just under 23 times, forward earnings on the S&P. Uh, so
You know, that's there are a number of similarities that are starting to creep, you know?
Creep in about comparing the dotcom bubble with the current AI. Uh you know, I guess call it a bubble if you will.
And and that's 1 of the 1 of them is that market valuations, have been driven to historically high levels primarily by these large companies. Uh, so
Not just on on that measure but, you know, on on almost all other every other quantitative measure, we we're at, or above all-time highs currently the price to sales, for example, which was really elevated back in the.com, bubble. We're 60% higher now than we were at the peak of the.com bubble.
um, operating margins are at at or near
All-time highs there, just doesn't seem to be a lot.
More that can be, can be squeezed out of the market in terms of getting higher and higher valuations. Now, that doesn't mean that valuations can't remain high for a while.
but at some point,
the risk reward or the balance between risk reward, uh, in our view, has to be shifted toward protecting these levels. So if you, if we get to Peak valuations,
Maybe there's another 5% until we get there, maybe we go a little bit higher than Peak valuations but there's just not a lot of room. However, if we go back to, you know, just valuations, if we look into the early 2000s, when the markets sold off,
After the.com, bubble blew up.
The market started trading back towards, you know, 14 13 or 14 times earnings.
Um, from that 23 times earnings level. So that that compression and valuation, if that similar thing would happen were to happen. Now that would be a 40% decline. Just based on valuation, even if we get back to a 17 or 18 times multiple which is still, you know, on it's an average level multiple we're looking at a 20 to 25%
Compression. And that's assuming earnings levels. Stay the same or earnings projections. See the same, if you have earnings degrading at the same time, it could be worse than that. So, you know, when you have a little bit of upside potential but significant downside, we think it makes sense, at least, for part of of investors portfolios to start getting a little more cautious and start thinking about protecting
You know, all of the money that they've earned in recent years and start protecting in case we do have some sort of of evaluation correction. Um so that that really is concerning the thing that makes it worse in our in our mind is the concentration and you know there are so many different measures. We see them almost every day.
You know, the 3 largest stocks in the S&P 500 make up over 22% of the index. That's Nvidia Microsoft and Apple just those 3 stocks alone,
At the dot-com peak, the three largest stocks made up 12% of the market. So we're almost double that level now, and back then, interestingly enough, Microsoft was one of the top three back then as well: Microsoft, Cisco, and General Electric.
um, the largest 10 Holdings in the SCP right now, make up 41%
Of the market relative to back in the.com area, the maximum is 26%. So the level of concentration at the top end is extraordinary. Um, we all know that the tech sector alone makes up over 34% of the S&P 500. That's a record high.
Uh, you know, during during the third quarter alone,
uh, just 3 stocks represented, half of the S&P return.
Apple Google and Nvidia.
So of that 8.1% move in the market, half of it was attributed to just those 3 stops. So
it works really well for investors when these stocks are doing well, but the reverse will happen. If we have some sort of Hiccup in the AI,
Environment that causes.
You know, a correction.
Not necessarily blowing up the AI as a technology and the future potential. But just from a valuation perspective and you're starting to see some concerns creep in now.
that, you know, if this if we do see some sort of
Of of negative, uh, impact with with valuations.
Then the concentration will start working against everyone.
So, while we're starting to see, you know, much of the S&P 500, hasn't performed nearly, as well as the market.
Those stocks may continue to hold up reasonably well, but the ones that have been driving performance may underperform dramatically, and that's what we want to protect against. Um, and that's why we have been underinvested in those. So we've missed some upside, there's no question, but um, you know our job here is, you know, managing a defensive strategy is to always be looking for, you know, what could hurt on the downside. So concentration really is making the overall environment much riskier than it otherwise would be.
Thank you Ray. Yeah, it's, it's certainly, um, seems to be in historic times in terms of that concentration and the top names, you know, 40% in the, in the top, 10 of the S&P 500 is is, um, you know, very concentrated. And I think, you know, there's a lot of scrutiny there in terms of how sustainable, um, that is on a going basis. And, to your point about AI, I, you know, seems like there's a, a circle, there's a web of payments being promised between, you know, both private and public companies on future, AI usage. And, and data centers that, um, you know, is, is really interesting, especially since some of those companies aren't making any any profit yet, right?
Um, how can you, uh, you know, make guarantees for hundreds of millions or billions of dollars, um, when you don't have any Revenue. So, uh, definitely something, we'll keep an eye on
Maybe switching to to a holding highlight. Um let's talk about Las Vegas Sands. It's been a top 10 holding for some time. Um, can you explain why this holding has been such a large part of MCN and, and why you guys like the name?
Yeah. Last week, a chance was a, a unique situation. Uh, we we um, you know, we have followed the name for many many years but, uh, we we really started to get interested. Um,
When they sold their Las Vegas property and um, and I believe that was in 2020.
Um,
Their operations on, on the, uh, the Asian gaming market. So they
Uh, not only by doing that. They they they brought in significant amount of money to
To basically Shore up their balance sheet, which had been a little on the risky side. But when they, uh, when they sold the Las Vegas property, um, their balance sheet, improved dramatically because most of that money went to pay pay down debt. So, the balance sheet was fixed, um, uh, to a large extent.
And they then focused on on Macau and Singapore as their 2 primary, uh markets. And they've always had a very large presence in both of those markets. In fact, they've been in Macau for over 20 years and they've spent
upwards of 15 billion dollars over the years, in building properties, and expanding and renovating,
Um, properties that are the largest player individually in Macau.
Uh, Macau is the largest Asian Gaming Center.
So they've got a market leadership position in the largest um, uh, Market in Asia.
And they have multiple Brands within that market so they have, uh, you know, the, the The Londoner.
The Venetian, the Parisian, the 4 Seasons, the Sans Macau, and underneath The Londoner, they have, you know, St, Regis Conrad, uh, various other Londoner Brands, they used to have the Sheridan and that was just renovated last year and just finished earlier this year, that was renovated and the name was changed to The Londoner Grand. So they have been spending some money and renovating and and upgrading their current hotel spaces and their gaming properties. Um, and and uh, you know, and they're just competing very, very well as a market leader in that in that market, uh, they also are the single largest. Um,
Uh, gaming operation in Singapore with uh with their ownership of the Marina Bay Sands.
Um, they have, and Singapore is the second largest gaming market in Asia. They have a 60% market share in Singapore in gaming, so it is a dominant market share there.
If anybody knows anything about Singapore, if they're a Formula 1 fan and they watch the Singapore Grand Prix, the, the the huge triple Tower in. Right downtown, Singapore, where the the races raced around it.
That is connected at the top with restaurants, and swing swimming pools and whatnot. That's the Marina Bay Sands complex. So it's a quite an impressive property.
It's not only hotel and gaming but shopping, um, and and other retail as well. So it it's it's uh it's really the kind of the center of the universe in terms of of Tourism and in Singapore
Um, the problem that the gaming market had not only in Asia but around the world was, was uh, was COVID. It basically shut everything down.
Now that's when we started looking at Las Vegas Sands and we started taking a position in in mid 2000 or 2021.
and um,
You know, clearly with a strong balance sheet, they had the ability to withstand being shut down for a period of time as we were starting to look at everything reopening.
North America and Europe reopened earlier than than Asia. So there was a delay in in reopening particularly China.
Uh Singapore, open first. And then China opened about 9 months to a year later.
and,
So that the, the the the thesis around, all of this was, we have a market leader with tremendous properties. Uh, that isn't currently making much money there. They, they were had negative free cash flow because they weren't able to to service any customers.
Uh, that was going to change once the markets opened up and uh and uh that was kind of our initial premise for starting a position in in in Las Vegas Sands. And you know it's been a bit of a choppy ride because there were always some some delays in fully opening up. Singapore opened up but then Singapore.
Approximately 25 to 30% of their gaming, uh, patrons are Chinese and Chinese couldn't. We're not allowed to exit the country for another 9 months to a year. So it took a while for the opening to started opening in Singapore and then when Macau opened it really started to gather Steam and and it's really been, you know, you know, quite quite uh quite nice to see the uh the return of gaming in in that in those markets and what we had hoped would happen with the, you know, free cash flow coming back.
It's been bumpy because it is a it is based on the Asian and the Chinese economy. So, whenever there's a concern about the Chinese economy slowing, it does impact virtually every other Chinese related uh company. So there's been a little bumpy along the way but generally the trend has been very very positive and, um,
And you know it's been particularly after the most recent earnings release uh the stocks trading uh near its highs. And uh and it's been a very, you know, quite a profitable investment for the fund. We continue to believe that it's going to continue to move higher. The free cash flow is is growing uh, by the quarter. Uh, the balance sheet looks good. The vast majority of the renovations that they were uh, undertaking have been completed. So there's not a lot of capital requirements going forward. And um,
And and you know, it just, it just ticks off all the boxes in terms of what we what we like to look at. They're returning a lot of money through share BuyBacks and dividend increases. They only just Inc, uh, reintroduced your dividend in 2023 and they've been RI increasing at significantly since then. The most recent quarter, just 20% increase in the dividend. So, um, it's, it's operating right now quite well, after obviously a difficult time, but we felt very comfortable back, then investing in a market leader, which had this kind of potential bottled up but just needed the markets to fully open up. So that that's been the story with Las Vegas Sands has been very uh uh
A very good holding for the fund and I think it's going to continue that uh for the foreseeable future.
Reay. Yeah, I I totally agree. It's, it's a great story. Um, I think it just goes to show in many aspects, your guys's, um, diligence that you do on these Holdings. Um, you know, identifying kind of that entry point and your, your thesis and, um, seeing the long-term Vision, uh, in the stock and, and, you know, taking that opportunity and being willing to, to hold it, um, throughout that time period, you know, not, not short-term investors in that sense. And, um, I I think that's appreciated by investors.
Tim, maybe switching to you. Um,
The fund changed, its distribution policy, in April of this year from quarterly to monthly distributions as distributions continue to be an important factor for many closed end fund investors. Can you describe how this change in the distribution frequency has benefited investors?
Sure, so this may be, um, old news for some, but it's really important because the listed closed end fund Market, is really an income buyer focused Marketplace, and having a monthly distribution um, really supports potential. Demand generation in the secondary Market. Um, and and what we're
Looking for is the opportunity to you know get in front of new potential investors in MCN and a monthly uh payout. Uh really opens um this fund up to a broader audience of potential income buyers income investors and um the listed closed ends on Marketplace because of this strong preference for monthly cash flows. Has really shifted. Um, it used to be that there were more quarterly pay, but most listed closed, end funds are now monthly pay and we plan to continue um, with that monthly uh, declaration and monthly payment.
Thank you, Kim. Yeah, very, very helpful. I think, you know, it's been a positive development, obviously, helping with investors' cash flow needs by having that more frequent cash flow.
Right. Turning back uh, to you
With tariff downturns in early Q2, you know, that really, um, tank the market for for a short stint there. Now, strong Equity performance in Q3, if that market volatility were to change. Meaningfully, you know, in either direction, um, how might that change your option, writing strategy, and, and Equity, exposures,
yeah, I think, um,
You know, a lot of it depends on the events that causes volatility to change, uh, over the past year. Or so if if we look at the VIX Index as a kind of a general view of all of the market volatility,
Not long ago, you know, just a few weeks ago, it was at 15. And for most of the third quarter,
The vix was quite low in the 15th, when we had the Tariff, concerns as you noted, uh, the vix spiked above 50.
But that was very, very short-lived because the event Was a Very short-lived the market started recovering within a week or so.
Uh, so a lot depends on what causes
volatility to go up, we you know, it
if volatility were to go down from here,
it would mean that the market is probably continuing to move higher. So we would not change our stance in in any significant way because we're already very defensively positioned. We have a high level of option coverage right now, uh, for for a number of quarters, we've been you know in that 90% uh coverage neighborhood. We're already defensively positioned from a sector standpoint. So we're we're prepared for more volatility. And if it doesn't come, we're just, you know, right now prepared to continue, you know, holding the fork, you know, waiting for, for, uh, something to break in the market. Uh, so from our perspective, the only thing that that could change that would be
An event of some sort that would cause volatility to spike, but that event would be more longer lived such as we saw after the.com, bubble where we had, you know, a good 2 and a half years of markets, steadily declining, um, uh, or or just a prolonged period of decline in the 2022. It was 10 months, for example.
so, you know it's it's very
You know, we we we really in April, you know, we saw the market correct. We didn't get
Immediately bullish.
Because our feeling was that, that could have been the beginning of a much more significant correction that didn't happen.
Now, we've had the market rebound, significantly, and we're still concerned about about some sort of negative reaction. So we're we're more concerned about a, a volatility, spike in the market going down.
if that were to happen,
Then.
We would perform quite well in that environment. We would, we would, uh, protect well in the downside.
Uh, we're you know, the portfolio's defensively postured looking very well covered.
and then at some point during that period, if we have more of a prolonged
Uh, event in the market, then it really depends on where valuations sink down to at at a certain point. We feel more comfortable re-entering, the market and getting more aggressive with our underlying sector allocations. For example, we would begin moving out of those defensive sectors more into some of those higher beta sectors, like discretionary, and
And technology, for example, where we've been underway for quite some time?
Uh, so that would be, you know, dependent on what happens within those sectors. And what valuations, look like as the market, corrects.
Uh and at that time, the you know, in all likelihood volatility will still be relatively high and we'll be able to write further out of the money.
uh, at Reasonable Doubt at reasonable option premiums so we'd be able to
buy stocks lower.
Still participate if they Rebound in more of the upside, than we, otherwise could do in a low volatility environment. So that would be really a, a a, you know, a terrific environment for us to be able to buy stocks cheaper get a little bit more aggressive with our underlying stock selection and sector allocation and then continue writing possibly, not in the 90% neighborhood. Bring that back down to what we typically, you know, view as average as around 80%. So get more upside participation and write for
Further out of the money because volatility will remain stickier for longer if we have a longer downturn. So, that's kind of the way we approach. We approach things, most of what we do is driven by our, you know, how we position the underlying portfolio. So, when we make those shifts, it's all about Comfort levels with the underlying Holdings and their valuation levels at that time. Um, and that's typically why we're not chasing stocks at these high valuation levels because we just don't have that Comfort level.
Thank you. Alright, very very helpful, as always.
Kim shifting to you. Um, you know, looking at the current market environment kind of as as Ray was talking, um can you describe some of the reasons that investors may look to covered call strategies?
Maybe the time now to start protecting and you know a lot of um Equity investors have benefited from the run-up in in um Equity prices over over the last the last few months. So I think covered call strategies, you know um for Equity investors are basically allow you allowing you to participate in that growth but you're also generating cash flow from option premiums. Um, which is, I think, um, for for folks that are sort of growing concern, this is a good way, uh, a lower risk way to approach Equity investing, and we think that there's a lot of benefits, especially for retirees or income oriented investors, um, who haven't, you know, um, who are concerned about current pricing in the market. You know, I think when when Ray spoke about the concentration um, in in the
S&P 500. It is quite surprising. And so we we're deviating from historical norms and I think that's why investors um like what cover calls have been able to do um in various Market environments and, you know, MCN um, you know has over a 20-year track record and raised been involved from the beginning. And so that consistent approach is I think helpful in the context of
You know, a manager who's seen a lot of different Cycles. So that's why we think there's a natural appeal for covered call strategies and, and Jared. We saw it in 2022. 2023. You know, after both stocks and bonds didn't work the way they were supposed to in 2022. We saw, um, a huge increase in demand for hedge Equity, strategies and cover call strategies were among those. So, um, I think that's why it's worth considering how covered call. Um, strategies can be incorporated into the portfolio and potentially play a role, um, where we are today in the market. I think there's a compelling case,
Thanks Kim. Yeah, I totally agree and maybe we, we dive in a little bit on Madison's approach to managing covered call strategies Kim. Could you just briefly describe how mcns active management approach, you know, both on the the active option? Active, uh,
Active uh, Equity. Uh, selection side is differentiated from some of the other options in the market.
Yeah, I think you said it, it's active active active, both on stock selection active, um, on, um, single stock, option selection. And so, um, that's always been Madison Investments approach in MCN. And over the last 20 years, there's been quite a new hedge dekhle strategies that have come to Market, many of which are not highly transparent. Um, so when you look at the schedule of Investments, you know, there are derivatives, you're unsure, um, of what's going on? So we like the active stock and the active option approach because you we have that transparency, you know exactly what the portfolio management team is doing and um, and I think it it adds value to a covered call portfolio to take this approach. Um and you know it's I think in a, in an age now where there's a lot of different
Um, options, um, or choices among different hedge Equity, strategies. Um investors should be mindful of um some of the the differences between these products sets. So we like the approach that Madison Investments takes here in terms of um, the active um, thesis development on the underlying stocks and then they're able to set strike prices in line with
With where they think full value. Um, is in that particular stock, so they're, um, able to be much more precise in terms of the execution of their thesis, and as you hear Rey, talk about Las Vegas Sams. That's just 1 example, you know, in a diversified portfolio, where he's able to express a view in both the underlying options or excuse, me in the underlying stock, and then the option that um, fits how he's thinking about that, uh, that stock in the portfolio. So that's why we like the approach that they take.
Thank you, Kim.
Very active on ensuring the equity portfolio is is covered by call options.
Could you just discuss maybe a little bit? The the portfolio is 88% covered. Do you think this appropriately, reflects your views on the equity market today? And how do you determine when to adjust the amount of the portfolio that's covered and the benefit it might provide
yeah, we we we start off from, uh,
From the stance that.
you know, we we are a covered call writing strategy and so we should be
Uh, maintaining that discipline. Uh, so rather than moving around significantly and, you know,
Being 40 or 50% covered.
When we think the markets are going to go up and then 80% or 90% covered. When we think the markets are fully valued.
We've always believed that, you know, we're we're, we're being paid to be a defensive.
Hedged Equity income oriented strategy and we have to maintain that discipline. So on average I think we're going to be um uh you know, we're very comfortable being the Approximately 80% covered give or take in in kind of a neutral Market environment. We may go slightly below that if we if we feel the markets are are, um,
Uh our our attractively valued so we can get more upside. Uh and then as I noted earlier,
In the current environment where we think the markets are overvalued, we would move.
You know, as close to 100% as we can get and we I get lost lost a lot. Well, why aren't you at 100%? And there are always individual reasons for, with, with individual Holdings, um, that we may not want to write on every name or fully write on every name. And, you know, an example, is 1 of our biggest Holdings is AES the utility AES is a, uh, combined regulated utility
And an unregulated, um, uh,
uh, wind and solar uh utility or or power generator and
There's there has been for, for a couple of months. Now, some talk that because the stock is so fairly valued and is very attractive with its Holdings. It's the second largest Alternative Energy uh wind and solar generator in the country.
That that there have been some uh infrastructure funds like BlackRock and Brookfield that have been sniffing around in terms of potentially buying the company.
And, uh, so if that's the case and we think those are actually reliable, um, so-called rumors, I suppose, um,
Then, we want to be able to participate in that. We're already getting paid a pretty nice dividend on the stock, and if we were to have some sort of bid come in, we would like to participate as much as we can. So, we're not fully covered on AES at the moment, which is one of the reasons why we're not.
Into the, you know, well, into the 90% range. So there's always going to be 1 or 2 of those kind of situations that we don't necessarily want to be fully covered on everything, but being around 90% covered is, well, much more defensive than we typically are. And that's just a reflection of how concerned we are with valuations. And you know,
we'd rather be early in being defensive than being late.
Um, is Kim mentioned? You know, once when markets correct, they become there. There's a lot of interest in hedged equity funds. Well, the interest should be before markets. Correct?
Because once they correct, it's kind of late to be jumping into a hedge Equity Fund, unless you really believe the markets will go in significantly lower. So we're, we're kind of in the same mindset. We want to be defensive before the markets, correct, rather than trying to catch up.
Take the brunt of the downside initially and then try and get more heads later. So we know we're we're staying relatively, uh, uh, higher higher level of coverage.
and a level of coverage that's closer to the money with each option, which simply means that the the Deltas are higher
Very close to the money, collect a bigger premium and then let the socket called away or a portion of a get called away because we were likely going to want to trim it anyway at the higher valuations. So most of the sell discipline that we have, we we, uh, we, we utilize options as our selling vehicle and assignments as the selling vehicle. So that's how we're we're managing the active portion of the options, ultimately everything.
Starts with the foundation of the portfolio, which are the individual holdings. That's where you can protect the most by owning high-quality.
Uh, companies that are not going to blow up.
When the market doesn't do well. And, uh, so you have to start out with that solid foundation, the options, provide the next level of protection and then we can change the level of protection depending on our view of each individual holding
Thank you, write very helpful.
I just want to remind, uh, the audience please. If you have any questions submit them into the Q&A box below, we would be more than happy to, uh, answer them. I know we're, we're coming close on time. Uh, Kim. I do have another question for you. Um, and it's regarding, uh, kind of the secondary market dynamics. Uh, the fund has relinquished its premium this year, but it does continue to trade.
As well. Um, compared to its peers, can you describe a little bit on how XA Investments works to promote a strong secondary trading market, uh, with its listed closed-end funds?
Yes, so I I think what we're trying to do is make information available to research analysts, um, to advisors and then ultimately to the income buyers themselves, in terms of, you know, allowing you to, um, speak with, you know, Rey who has been the the longtime portfolio manager is really an opportunity. That's not typical for most listed closed, end funds. And so we're trying to, um, Drive awareness for MCN and the secondary Marketplace. Um, we're I'd say, you know, we're okay with how things are trading and the secondary Market, um, you know, MCN typically trades differently than its peer group, uh, which is, you know, which is not too surprising, I guess, um, given its long history, um, the market wide average discount, if you're looking at all listed clothes and funds, you know, which is a mixed bag of different asset classes.
Um, it's about negative 4.5%, you know, and so, uh, MCN is in line with that market wide, average discount and so through, uh, our proactive secondary marketing. Uh, we're trying to drive volume in the secondary Marketplace and maybe, um, Jared if you could, uh, just show Slide 21. I just wanted to comment on the trading and the secondary Market over the last, um, year. Um, on the right hand side, you'll see. Um, we note that, um, in the last, um, in 12 months, we've seen average daily trading volume of about 70,000, um, shares per day, you know, and that's in contrast to, uh, last year in 2024, where that volume was was about 50,000 shares per day. And this is what we want to see. Um, we're we're coming up on the 1 year, anniversary of uh, the collaboration between
XA, Investments, and, and Madison Investments. Um, and what we wanted to do was was, uh, support the fund in the secondary Market helped Drive demand, um, in the secondary market and a healthy. Um, level of trading volume is really important for the overall health and wellness of a listed closed end fund. And so, um, I think that if we will continue to monitor, um, what's going on in the secondary, the volume is, is
You want to hear more from Madison, or if there's... I know we're working on a white paper too, Jared, that we're going to be publishing soon, which is going to further educate, um, investors. I think the people who've already been longtime shareholders appreciate the thesis of a covered call strategy. But what we're trying to do is expand the knowledge, um, to a broader base of potential investors.
Absolutely Kim. Yeah, definitely be on the lookout for that white paper. Um, you can always sign up on our website XA investments.com, uh, to get those updates. And, and we will make sure you get it. Also, reaching out to info at XA investments.com, that email address, uh, will get you right in touch with Kim or I 1 last question, uh, Ray for you and and maybe looking, uh, into the future a little bit here, um, Equity markets, have performed strongly in Q3 as we've discussed. Um, what's your outlook for the last quarter of 2025? Obviously, we're we're a little bit over a month into the fourth quarter, but also into 2026.
Yeah, I I'll keep I'll keep it brief because we're running up against time. But, uh, you know, it's the strategy, we're, we're comfortable sitting where we are. Again, we've been very defensive and you know we've it's caused us to lag the overall Market. But perform well against our Benchmark. We're going to continue to stay where we are because you know, in our view
You know, there will be at some point a crack in, in valuation. Um, and you know, I could, I could go on and on about Ai and, you know, some of the concerns out there, but we're starting to hear more and more of them almost on a daily basis to see when this morning. And and yesterday there were, you know, there there's some, you know,
A lot of people within the industry. Sam Altman at openai Jeff. Bezos have come out and said, yeah, there's a, there's a, there's a bubble in in AI right now. It doesn't mean the whole thing is going to blow up or the technology isn't transformational but valuations have gotten well ahead of themselves. And the market seems to be reacting starting to react to that how how this evolves. We'll, we'll we'll see. Um, but
You know, we we we are concerned that valuations have gotten too high, so from our perspective, it's kind of like, you know, starting a roller coaster ride when you're going up that first big big climb and the closer you get to the top, the more White Knuckle you get you grab on tighter and you get you prepare yourself for what you know is coming.
And, you know, we've got White Knuckles right now, we're holding on tight and we're going to continue to maintain our defensive posturing, um, because we think, you know, that, that, you know, we're going to see some some pretty significant up ups and downs and volatility.
Um, you know, whether it happens in the fourth quarter this year, we slide into 2026, um, you know, we we we fear that it's, it's in front of us and we just want to make sure that we're prepared for it now rather than trying to catch up later. So, uh, we're trying to be realists uh, about all of this and um, and you know we've we've all been through Cycles before. I know I have um, in in, you know, over over 35 years in the market, you know, you you have to remember that there are cycles and that sometimes it doesn't take a lot when you're near the top to uh,
To cause the cycle to turn, and, uh, we just want to, we, we, it's incumbent on us to maintain our discipline and maintain that defensive structure, um, particularly now. And, uh, I think we're just going to maintain that. So, our outlook is.
Be prepared. Um, we certainly are, and I think nothing changes from our perspective for now.
Thank you, Ray, and thank you, Kim, and everyone for joining us on the call for the third quarter 2025 MCN webinar. If you have any questions about the fund or XA Investments, please don't hesitate to reach out to Kim or myself, as always. For more information on MCN, please visit XAInvestments.com. Thank you, and have a great day.