March 2025, From the Field
Finding the right investment to generate income can feel overwhelming, especially with so many options available to you. Whether you’re in retirement or still working, navigating the possible solutions can seem daunting. You may be more concerned with receiving the highest monthly distributions, or your focus might be on preserving principal and not taking on too much risk.
Consider the new Capital Appreciation Premium Income ETF, or TCAL. Built for investors seeking both competitive income and capital preservation, TCAL is designed to deliver a high level of current income through a combination of call option premiums and equity dividends, while also seeking to preserve principal through risk‑aware active management. While these qualities make it an attractive option for retirees, the fund could be an important component in any diversified portfolio.
A strong foundation
TCAL is a new member of the Capital Appreciation suite, a set of investments managed or co‑managed by David Giroux and a team of tenured portfolio managers that draw on similar approaches and principles:
Past performance is not a guarantee or a reliable indicator of future results. Source: Morningstar’s Manager Research Group. See Additional Disclosures.
“The Capital Appreciation Premium Income ETF has its roots in a covered call option writing strategy we’ve deployed in CAF [Capital Appreciation Fund] for more than 15 years,” says Giroux, TCAL co‑portfolio manager and a six‑time nominee and two‑time winner of the Morningstar Fund Manager of the Year award,1 who has also managed CAF for almost two decades. “We recognize the growing importance of income for investors, and we think TCAL offers a better way to pursue income without sacrificing diversification or taking on excess risk.”
TCAL Co‑portfolio Manager Farris Shuggi explains: “We believe our experience implementing covered call option writing strategies gives us a competitive edge. We take our tested investment process of identifying less volatile, higher‑quality stocks with characteristics such as strong capital allocation and great risk‑adjusted returns, and then we aim to maximize income by capturing call premiums for the names we own.”
...TCAL aims to offer a better way to pursue income without sacrificing diversification or taking on excess risk.
“We think markets tend to overestimate the future risk or volatility of specific stocks, and therefore writing call positions tends to be overcompensated for realized risk over time,” adds Shuggi. “This creates an inefficiency we can exploit by taking a selective approach and writing options on stocks we believe to be less volatile. And by capturing the premium when we write the option, we offset some of the downside risk for those names.”
A solution for retirement
Many retirees struggle to balance the desire for income to help meet their expenses and fund their goals with the worry that they might outlive their accumulated assets. TCAL seeks to provide an outcome‑oriented approach that addresses both of these retiree concerns simultaneously, especially in an environment where inflation and rising costs is top of mind.
The Capital Appreciation Premium Income ETF can help address these needs:
Rethinking volatility
For many retirees, volatility is a chief concern. After decades of focusing on growth, your priority now may be primarily on capital preservation. And when market volatility rises, so may your concern for your investments. Identifying lower‑volatility stocks helps us see where the market is overestimating risk, and we can take advantage of that inefficiency to generate income.
Identifying lower-volatility stocks helps us see where the market is overestimating risk, and we can take advantage of that inefficiency to generate income.
Whether your focus is on current income, capital growth, or capital preservation, we offer a suite of solutions that can align with your goals.
Each portfolio in the suite offers differing approaches to seeking capital appreciation and income that can position you to benefit when markets gain ground while also providing a seasoned risk management process.
David R. Giroux, CFA®
Head, Investment Strategy and Chief Investment Officer
Farris G. Shuggi, CFA®
Head of Quantitative Equity
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1Established in 1988, the Morningstar Outstanding Portfolio Manager of the Year award recognizes portfolio managers who demonstrate excellent investment skill and the courage to differ from the consensus to benefit investors. Award winners are chosen based on research and in-depth qualitative evaluation by Morningstar’s Manager Research Group. To qualify for the award, managers’ funds must have not only posted impressive returns for the year, but the managers also must have a record of delivering outstanding long-term risk-adjusted performance and of aligning their interests with shareholders’. Managers’ funds must currently have a Morningstar Analyst Rating™ of Gold or Silver. David Giroux won the award for Allocation Funds in 2012 and Allocation/Alternative Funds in 2017. Morningstar’s Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc., including, but not limited to, Morningstar Research Services LLC. Morningstar’s Manager Research Group produces various ratings including the Morningstar Analyst Rating for funds and the Morningstar Quantitative Rating for funds. The Analyst Rating is derived from a qualitative assessment process performed by a manager research analyst, whereas the Morningstar Quantitative Rating uses a machine-learning model based on the decision-making processes of Morningstar’s analysts, their past ratings decisions, and the data used to support those decisions. In both cases, the ratings are forward-looking assessments and include assumptions of future events, which may or may not occur or may differ significantly from what was assumed. The Analyst Ratings and Quantitative Ratings are statements of opinions, subject to change, are not to be considered as guarantees, and should not be used as the sole basis for investment decisions.
2As of December 31, 2024. Based upon a T. Rowe Price analysis of calendar year returns for all equity and multi-asset funds domiciled in the U.S. with greater than or equal to 17 consecutive years of beating their Morningstar peer group average while under the management of the same portfolio manager. Analysis excludes any portfolios managed by David Giroux in the same manner as the Capital Appreciation strategy. The Morningstar Category system was introduced in 1996, but it includes funds that began operations earlier. The Capital Appreciation Fund is in Morningstar’s Moderate Allocation Category.
Additional Disclosures
©2025 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
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Important Information
Call 1-800-225-5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information you should read and consider carefully before investing.
Risks
Capital Appreciation Fund: The fund is subject to the inherent volatility of common stock investing. The value approach carries the risk that the market will not recognize a security’s intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced. Because of the fund’s fixed-income holdings or cash position, it may not keep pace in a rapidly rising market.
Capital Appreciation and Income Fund: The fund is subject to the inherent volatility of common stock investing. Fixed-income securities are subject to credit risk, liquidity risk, call risk, and interest-rate risk. As interest rates rise, bond prices generally fall.
Capital Appreciation Equity ETF: The ETF is subject to the inherent volatility of common stock investing. The fund’s value and growth investing styles may become out of favor, which may result in periods of underperformance. The fund is “nondiversified,” meaning it may invest a greater portion of its assets in a single company and own more of the company’ voting securities than is permissible for a “diversified” fund. The fund’s share price can be expected to fluctuate more than that of a comparable diversified fund.
Capital Appreciation Premium Income ETF: The ETF is subject to the inherent volatility of common stock investing. The use of derivatives exposes the fund to additional volatility and potential losses. A derivative involves risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based, including liquidity risk, valuation risk, correlation risk, market risk, interest rate risk, leverage risk, counterparty and credit risk, operational risk, management risk, legal risk, and regulatory risk. The fund will write calls on instruments the fund owns or otherwise has exposure to (covered calls) in return for a premium. Under a call writing strategy, the fund typically would expect to receive cash (or a premium) for having written (sold) a call, which enables a purchaser of the call to buy the asset on which the option is written at a certain price within a specified time frame. Writing call options will limit the fund’s opportunity to profit from an increase in the market value and other returns of the underlying asset to the exercise price (plus the premium received).
This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.
The views contained herein are those of the authors as of March 2025 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
ETFs are bought and sold at market prices, not net asset value (NAV). Investors generally incur the cost of the spread between the prices at which shares are bought and sold. Buying and selling shares may result in brokerage commissions, which will reduce returns.
Past performance is not a guarantee or a reliable indicator of future results. All investments are subject to market risk, including the possible loss of principal. Dividends are not guaranteed and are subject to change. All charts and tables are shown for illustrative purposes only.
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