Blair
Well, good afternoon, everyone. And for our friends in the West, good morning. Thank you for joining us, and thank you for investing your time today on Blair Setford, the VP of Product Management here at Canada Life Investment Management Limited. I'll be your host for today's event. Some house-keeping items just before we dive in, a few quick tips to help you get the most out of today's session. We do love questions, so please feel free to ask them using Slido. Throughout the event, you'll find instructions on how to log in on your screen. And if you see a question that you like, make sure you give it a big thumbs up. That helps us to prioritize what matters the most to you. So we will tackle as many questions as we can during the Q&A portion at the end of our conversation today. And for our advisors tuning in live, if you attend the full session, you will receive CE credits, a CE certificate in the coming weeks. For our Quebec advisors, keep an eye out, a CE quiz will pop up on your screen once the session wraps up.  
So with all of that said, let's get started. Today's session, we're going to explore income-generating strategies that can help deliver consistent cash flow while balancing out both growth and capital preservation. We're going to look at a number of flexible solutions that Canada Life has to offer, including some easy-to-use single fund strategies that can help take the guesswork out of investing. Now, this includes our recently launched enhanced equity income funds that include cover call strategies. We'll dive into that today. Also, our Canada Life risk-managed portfolios and some other cash flow-generating options that can help meet income needs. All of these solutions are designed to help provide investors with options to help support their long-term success. 
 
Blair 
Now, to inform our conversation today, we're really pleased to welcome our colleagues from Irish Life Investment Management, Leonie MacCann, the Head of Client Investment Solutions, and Shane Murphy, Head of Manager Selection and Derivatives at ILIM. They both bring some deep expertise and practical perspectives on how these strategies are built and how they can work for you. So welcome, Leonie and Shane. Thanks for joining us today. 
 
Leonie Thanks, Blair. 
 
Blair Leonie, why don't-- Oh, great. Yeah, thanks. Leonie, let's start with you with generating consistent income while managing risk. It's one of the biggest challenges, especially in today's changing market conditions. From your perspective, why is this such a critical focus right now for investors and how are investment managers adapting to this need? 
 
Leonie 
Yeah, thanks, Blair. So I think this has been a challenge, not just today, but for quite some time for investors. The main challenge really has been how do you generate a sufficient income for your needs? And this really goes back to the global financial crisis. So if you went back to 2008, post the global financial crisis, you had a prolonged period where we were in this low and indeed negative interest rate environment, really spurred on by central banks having to cut interest rates, do quantitative easing, and we were in that low or indeed even no inflation type environment. And even maybe just to put it into context, you don't even need to look that far back to remember what that environment was. So if you go back to 2019, you had 17 trillion worth of negative yielding bonds out there in terms of the global investment universe. That was about 30% of the global aggregate bond universe. That's kind of crazy now when you think about it, but that's where we were. And then since 2022, we've moved into what could be described a more normal rate environment, really spurred by that inflationary shock we got post-COVID and central banks having to do aggressive rate hikes. So it took, what's that, 14 years post the GFC for us to come out of negative rates. Now that's maybe not quite as long as the Blue Jays have to wait to get into the World Series. 
 
Blair 
Well done. 
 
Leonie 
We probably didn't get as quite a euphoric reaction, hopefully, and particularly in Canada where we moved out of negative rates, but we have come into a more normal interest rate environment. But while yields are higher, they're still not as high as they have been historically. So if you just take the Canadian 10-year yield as an example, today that's yielding about 3.1%. If you were to look back over the last 35 years, on average that yield has been 4.5%. So it is back to more normal, but still lower than history. And if you look at the global bond universe in terms of the publicly available debt outstanding, I think we've got a slide here that shows this, 90% of the global bond universe available in public markets is yielding 5% or lower. So when you think about most clients, when they're looking at needing an income stream, they really want 5% or more. So the challenge is how do you generate that level of income? Now, how have investors and investment management industry adapted to that? Well, there's two things really. First, you've seen this reach for yield. And we really saw this post GFC, post the global financial crisis, that you increasingly have to go up the risk spectrum in order to deliver a level of income to meet your needs. Now, that is still relatively true today, but you have to be really cognizant of what type of risk you're taking and how you manage that. So it can work very well in a diversified portfolio where you're balancing that risk, but you need to be even more mindful of risk. The other thing that you've seen really is the evolution of income generating strategies. So typically and traditionally, most people have derived their income needs from things like fixed income, property, if you can tolerate illiquidity, and dividend focused equity strategies. So companies that are paying higher dividends to deliver that income stream. Those type of levels of income are much lower than they have been historically, just given the nature of the environment. So you've seen an evolution of income strategies come on stream to people using more and more non-traditional income strategies. Things like covered calls, which we're going to touch on today, and also utilizing alternative asset classes. So things like liquid alternatives where there's a yield element or real assets or private markets, indeed. And that's a trend that we have seen in terms of the adaptation over time. 
 
Blair 
Leonie, you mentioned covered call strategies. And Shane, this is a fairly sophisticated way to potentially enhance income to get to that 5% level that Leonie mentioned, or even beyond. Now, not everybody might be aware of that or able to use covered call strategies, but can you walk us through how they can help investor income needs while also managing risk? 
 
Shane 
Yeah, absolutely. Thanks, Blair, for sure. 
Yes, look, a covered call involves holding an underlying risky asset. In this case, it's going to be equities in the way we're managing it. And then you're selling a call option on that asset. So we're going to get our equity exposure through an ETF. So we're going to be long an ETF or buying an ETF and then selling listed call options on that same ETF. So in exchange for selling those call options, you generate a premium. OK, you're selling the call options regularly. So you get a regular income stream. The option buyer is going to pay you for those call options. So that's generating your income. You're also going to supplement that with the dividends that you buy. So Leonie mentioned high dividend paying equities as being a source of income. So here you're really taking your equities. That dividend deal you get are then supplementing it with this option index or with this option premium as well. So that makes up your income stream and that can be paid out regularly to investors to give them there to support their regular cash flow. 
 
Blair 
So that's. Well, sorry, go ahead. 
 
Shane 
No, go first. Go for it. 
 
Blair 
No, I was just going to just follow up then for Leonie because building on that, complementing multi asset solutions like the risk managed portfolios when you put them together with something like the enhanced equity income, are you really creating a much more resilient income focused portfolio now? 
 
Leonie 
Yeah, absolutely. And indeed, I think those types of strategies work most efficiently in a multi asset portfolio where clients do have that income requirement. Because as Shane has just mentioned, a covered call or a call writing strategy, it's a really effective means of generating income. But you are still holding a risky asset because you are holding and getting exposure to the underlying equity market. 
Now, that option portion does reduce your risk relative to the broader equity market, but there's still risk there. So in order to help balance that, I guess, objectives of delivering income and managing risk, it gets much more effective when you bring that into a multi asset components. And when you think about you mentioned the risk management strategies, the risk managed portfolios, Blair, they have much greater focus on defensive equity in terms of what they're trying to do in that smoother investment journey. They do have a strategy, the risk reduction pool, which isn't too dissimilar from the enhanced equity income strategy, but its focus is very much on protection. So trying to deliver explicit protection from equity market falls and to help fund that protection, it does sell call options as well, which can deliver an income, but its focus is an income. 
So you could see where clients do have a specific income requirement. It could be a nice compliment to have a more income focused income generating strategy alongside or within that potentially depending on client objectives. So I think in terms of how do you think of these types of core writing strategies in a multi asset context, I think it sits in an equity portfolio because you're holding equity. But I think it can be a very nice compliment to traditional income and traditional equity strategies and give enhanced income needs, as well as sitting as a compliment alongside more traditional assets like fixed income. So I think it works really effectively in that diversified approach because you're building resilience and also greater robustness in that portfolio design. 
 
Blair 
I liked what you said about that multi asset strategy too, including things like property and then these strategies as well. That's a really resilient piece, as you said. Shane, are there common misconceptions about derivatives or covered call strategies that investors and advisors should keep in mind? When they're considering these types of tools? 
 
Shane 
Yeah, I think there are. It's fair to say. I think maybe there's some history lessons in this, but people often associate derivatives and options with kind of leverage, you know, taking leveraged exposure or excessive risk taking. But it's very important to remember what the options are doing here in this strategy in a covered call strategy. They're really taking risk off the table rather than adding to it. So remember the structure works here long, some underlying assets, your long equities. But then you're selling that call option and that's actually reducing the risk of the strategy when you package those two things together. And it's a covered call strategy. The hint is in the name. Any losses on the call option are generally going to be funded from that underlying asset. You can always cover the losses on the call option, which will generally happen if the market rallies very, very quickly. You can always cover those with the underlying asset that you're holding. So when you package it all together, the volatility of that of that strategy, the call of the call writing strategy should come out at around 80 percent of the equity index. If it was just on its own, the pure equity index strategy. So very much the case here that the call options are a risk reducing mechanism here rather than adding any leverage or adding any overall risk. So for investors looking at the strategy, there's really no need to be scared because there's options or derivatives involved in executing it. 
 
Blair 
And Shane, you mentioned on that upside bit. How about for investors who are really concerned about that downside? Can we really put that into plain language for them? 
 
Shane 
Yes, it's important to remember what your upside and downside look like for this strategy. As we only said, there's a little bit of downside mitigation in a strategy like this, but it's not. It's a moderate amount of downside mitigation. OK, so if you imagine the equity market falls by 10 or 15 percent, you still exposed to that downside. You haven't bought put options to protect yourself. You've just sold away some upside, but you will offset losses partially with some of that premium that you collect. Now, it really starts to make a difference if the drawdown is very, very long because the option premium you collect over time tends to accrue. But there's a very fast drawdown like in March 2020 when Covid broke out and the market fell by 20, 30 percent, depending on what index you were looking at. You are only offsetting it by a very small amount. So there's some downside mitigation, but I wouldn't want to overstate what it is. And then on the upside, investors have to remember that your participation in the market in the upside of the market is capped. OK, so if you've sold call options, you're selling away that upside. There's a trade off here. You're converting some of that upside to income. So if the market rallies very, very quickly, if you've got a month where the equity market is up 12, 15 percent for whatever reason, you're only going to participate in that to a limited extent. So in exchange for that income, the trade up is you have to give away some upside. 
 
Blair 
OK, great. Thanks for that. That really helps to clarify, I think, how these strategies do work in practice. And Leonie, from your experience, are there any other misconceptions or areas of confusion that you see when you're implementing these types of income generating strategies? 
 
Leonie 
Yeah, good question. I think Shane has covered most of the misconceptions really well there. 
The one thing maybe that I would call out and maybe it's not a misconception, but interesting. It's more when we think about generating income from an investment perspective and a multi asset perspective. We're actually pretty indifferent from a pure investment perspective of whether that income gets derived, say, from income generating assets or from capital returns. The outcome is still the same in terms of an income to the end client. But actually, what you see in the research and what you see in practice is there's a real behavioral benefit from having income generating strategies in portfolios where clients have that income need. And particularly when you get to, say, Leonie and post retirement and for retirees where incomes even more important for them and their needs. They just like knowing that they have strategies in their portfolio that are generating that yield or income that they require, even though from a pure comp perspective, there is no difference. So you actually get better behavioral outcomes from your client by including those income generating strategies. So that's quite interesting. And that's why you would particularly in Leonie products, you would always look to have income generating strategies within there. And then maybe the other thing just to call out and I think we're but we're all talking to this to an extent is you don't want to rely solely on one income generating strategy in your portfolio. Diversification is going to be key because not every income generating strategy is going to work in all market environments. So you want to make sure you've got that blend of both your traditional income generation, some non-traditional, be that derivative-based strategies like the covered core we're talking about or alternative assets like property and infrastructure and real assets. But of course, depending on clients’ needs and capabilities to tolerate, say, liquidity or risk. 
 
Blair 
No, that's a great outline, Leonie. And thanks for that. And that's going to lead us into portfolio construction. And Shane, when you're putting together an income focused portfolio here, what are the key factors that guide your approach to align income risk, the growth objectives, Leonie mentioned decumulation. How do you determine when and how many or how much of a derivative strategy to incorporate into a portfolio? 
 
Shane 
Yeah, so I mean, first of all, there's the construction of the strategy itself. OK, and Leonie has touched on it. The way we manage it is really true to what Leonie described there, which he said, you know, income and kind of total return or capital return outcomes are equally important. And we see our job here is really balancing those two components. Right. So the more option you sell, the more income you can generate. But the less the less upside participation you have left. So we want this this strategy to be generating that income targets. But also leaving a bit of upside on the table because we don't want to lock ourselves out of the market completely. So we sort of when we're putting this together, designing this strategy, we see our job really is putting the income target, which in this case is five percent or slightly above five percent as the as the input. And then the amount of option we sell, the strike price we're selling it at, all of those things are really an output of that. And we're trying to kind of deliver the best total return outcome and the best capital return outcome we can subject to the income that we're required to deliver. 
 
Blair 
Right. Right. OK, great. Thanks, Shane. And Leonie, let's stay with this notion of portfolio construction, portfolio design. How do you sift through the market noise? We touched on that a little bit off the top. But when you're looking for those high-quality income opportunities and this would be separate from Shane's derivative strategies, what are the challenges that you and the team are facing right now? 
 
Leonie 
Yeah, look, I think it's fair to say that there's a lot of market noise right now and potentially more market noise than any of us in the industry and the world would like right now. But look, I think it's important to remember market noise and volatility have and always will be a feature of markets. You know, there is risk, there is volatility that creates opportunities and risks. And I think that's there to stay. So, you know, as our job as investment managers, we need to be able to navigate that. And it's really important to be able to look through a lot of that market noise and really to do that quarter that is focusing on the longer term. What are you trying to achieve for a client in terms of objectives from risk of return and income? And how do you do that over the longer term? It is, of course, really important to understand what the near-term risks are and how to navigate and be dynamic about around that. But looking through that is crucial. 
And when you talk about, you know, portfolio design and high-quality income opportunities, I think in today's world where let's be honest, we are in an aging world. The need for income is just going to increase, particularly in decumulation, where you see this shift from accumulation to decumulation. 
I always like to think we've got really good at reducing the risks of dying young. But as a society, we're really bad at reducing the risks of living for longer. And particularly, how do we fund that? So being able to deliver income in investment products and high-quality income to your point is increasingly important. 
And I think, Shane, you touched on this just in your answer. You know, when you think about the challenge that you constantly face, it is that balance between generating return, a need for income, if that's the kind of requirement and balancing risk. And there will be times when either income and or return are challenged, given the market environment. And I think key to navigating that and you're going to think I sound like I'm on a broken record here but is diversification. Blair, I know you've heard me talk about diversification a lot, so I could see you laughing there. But it is about maintaining a diversified approach and bringing it back to your previous question around building resilient and robust portfolios to navigate those different environments. So, you know, from a portfolio design point, when I'm thinking about a multi asset fund, first and foremost, you want to make sure that you're setting the right strategic asset mix for the longer term to meet the client objectives from a risk return and income perspective. As part of that, you will need equity. You know, if you're looking to achieve return, you need to have equity for growth. But how you allocate that equity becomes increasingly important. So when you think about trying to deliver high quality income, you know, you're going to want to have a number of income generating strategies like a mix of traditional, say high dividend focus for a nontraditional like the likes of covered calls and alongside other equities. And it will vary dependent on what the objectives of the underlying client is alongside that. I think fixed income has and always will be a core component from a portfolio design perspective, not just because they are yield generating, but they also provide diversification. 
So we like the ballast that fixed income can bring in a multi asset context, particularly if you were to see a prolonged or significant drawdown. That wouldn't be our base case, but it brings that ballast into a portfolio. And then increasingly from a design standpoint, and I've touched on this a little bit earlier, is we are increasingly looking at that complement of both traditional assets and nontraditional assets. So looking to allocate two alternatives for diversification, but an important need to help to reduce the overall risk and also additional return sources. So things like, you know, if I was thinking about income generation in some of our discretionary portfolios in our domestic market, we've allocated to things like catastrophe bonds where they their insurance and securities. They have a yield component to things like private markets and private credit. We're looking at more recently as well as your traditional real assets like property. So I think it'll ultimately depend on the underlying client's objectives and their risk return and capacity for risk. But it's about getting that balance right. 
 
Blair 
Leonie, I want to pick up on a couple of things that you mentioned. First, you talked about both a near term and a longer-term outlook. And you mentioned off the top, we spent a long time, 14, 15 years in a virtually zero interest rate environment. Rates went up through the early 2020s. They've come back down. Now you talked about a normalization. Is that still the near-term case and then longer term for investors who are now into this decumulation phase and are looking to pull income from their investments consistently? And that's a key word, too. What's the longer-term outlook for those investors? 

Leonie 
Yeah, I think that's a fair comment. Your first one there, Blair. So near term, there are still some challenges when you're looking to generate that consistent level of income. So, yes, we are in a more normal like yield environment. But as I outlined at the start, we're still seeing yields that are lower than historic averages. And you still have 90 percent of the fixed income universe yielding less than 5 percent. 
So that creates challenges, particularly for those that are looking for an income consistently that's higher than that. When you look at where the opportunities are from a near term perspective, and maybe if I just talk through some of the asset classes, that might be the easiest way to do it, Blair. Take government bonds, we still like government bonds and still think they can have a core component or at least a significant component of a balanced portfolio. It is for those two reasons of income and diversification. OK, the income level isn't maybe at that 5 percent level that you need, but it's a relatively lower risk way of getting a consistent yield coming into your portfolio, as well as that ballast that I spoke to. Within fixed income, you know, we do think there is scope for rates to fall further. There's more impetus for the Bank of Canada and the Fed to cut rates than the ECB right now. But we think the ECB could potentially have to cut next year. So I think there's room for rates to fall further. So that brings in a return component as well as that ballast and the income stream that they deliver. So that's attractive within, say, moving along the fixed income spectrum, then from government bonds to credit in the near term. We don't really like credit right now when you look at investment grade credit and high yield debt. Spreads are really tight. They're at or near historic lows. So there's not a lot of opportunity there in the near term. From a longer-term strategic perspective, I think they play a role in multi asset portfolios, but there's less opportunity there right now. So if you were to see a blowout in credit spreads or credit spreads widening, that's potentially an opportunity to add there. But right now it's not that attractive. Elsewhere, I do think in the near-term cash can play a role. You know, we're seeing much more attractive rates on cash than we have done historically in that last decade plus post the GFC. Now, I want to be clear, I'm not advocating for cash as a longer term holding. There's a very harsh and hard opportunity cost of not being invested. But I think in the short term, when you're in an environment where active equity valuations are rich, spreads are tight. Cash can offer a level of yield while also making sure that you do have some dry powder at hand if you do see some dislocations in markets so that you can deploy that. So there's some of the maybe nearer term opportunities. From a longer term, I've got to say it again. You need a diversified range of income sources. OK, just particularly the incomes that core client needs. As I said, not all income strategies will work at any given time. So you want more tools in the toolbox, essentially. Now, you mentioned that move into decumulation as we see the aging demographics globally. Income obviously is much more important component when you move into that post retirement, that decumulation phase. It's not just income that's important, though, Blair. It's also inflation. So maintaining a real standard of living and maintaining a real income level becomes really important. And also sequencing risk is really, really important when you move into that decumulation. So what that means is that the order that you experience your investment returns matters much more when you're withdrawing because your savings part is at its largest at that point of retirement. You've gone from accumulating and saving and compounding those returns up to grow your part of wealth to a point where you are now no longer contributing. You're actually withdrawing and actually your objective is not to try and save as big a pot as possible. It's actually trying to reduce the risk about living your part. So sequencing risk, income and inflation protection become much more important within that portfolio design context. 
 
Blair 
So, Shane, given Leonie's really thorough, forward-looking guidance here, are there any other income or asset strategies that can complement that derivative strategy in things like the enhanced equity funds or the multi-asset risk managed portfolios? How do you balance all of that risk? And are there other things that we have yet to touch on? 
 
Shane 
Yeah, look, Leonie covered a lot of it there. Right. But one thing, one other area that has also been mentioned once or twice on the call is private markets and what they can bring to the mix in a multi-asset portfolio. Right. And there are also, you know, a lot of these strategies are. Have an income generating tilt to them as well. Right. I think especially of real estate, which tends to produce a yield infrastructure, which is all about stable cash flows or stable yield and then private credit or direct lending as well, which is, you know, a form of bond, essentially, of which is going to pay you a regular coupon. There's been a lot of innovation in this space, I think, that has made some of these strategies more accessible than they used to be for more pools of capital and used to be able to access them. For multi-asset investors as well. 
So I think some years ago, if you wanted to invest in private credit, say you would have had to invest in a sort of a lock up fund, put your money away for a long period of time and you might be waiting four or five years before you got any income. You have to go through what they call a J curve. Right. So that's maybe not that conducive to generating income, although these strategies have historically delivered really good, really good total returns. But the sort of innovation we've seen is the rise of evergreen funds. So these maybe allow you to start generating income a little bit earlier and exist in perpetuity. So you don't have to sort of lock your money away for a long period of time. Semi liquid solutions, which have a bit more liquidity, might allow you to get out, get your money out over a year or two period rather than locking it up for eight or nine years. And these sort of innovations have made this made this space more accessible. 
So you do have to remember these, you know, you still have to withstand a level of illiquidity. These aren't going to be for everyone or not everyone will be able to access them. And with allocating assets that are illiquid, sizing is really, really important, right? You don't get to change your mind as easily if you put 10 percent into these into these assets and the market falls by a huge amount. Your assets may not mark down as much. That might be a little bit artificial, but you might benefit on the price performance of these assets. But the rest of your assets will fall and these will increase as an overall percentage of your portfolio when you can't really change it all that easily. So sizing is really important with any illiquid assets in a multi asset solution, especially. 
 
Blair 
No, that's a great primer on things like private equity, private credit. And there are some solutions that are available in the Canada Life and Investment Planning Council ecosystems that can help. And I would say the right investors, because these aren't, Shane, as you said, for everybody. And thanks for mentioning that. But there are some solutions available for those that are interested. And you can you can contact your business development team or your advisor for the investors on the call for more information on those types of solutions. Leonie, let's move to some final thoughts first from you on specific regions, sectors that you think we should be looking to for opportunities. 
 
Leonie 
Yes, look, when we when we look at the current market backdrop, I think the best way to describe our views right now is we're cautiously optimistic, if I was to put it in a short sentence. So, look, I struggle to bet against the US in an environment where earnings are growing, estimates are accelerating, you have economic data that is still robust, rates are likely to fall from here. And also you've got fiscal stimulus from the one big beautiful bill act as well as the AI theme still intact. But there are risks up there right now. You've got high valuations. So returns from here going forward are really going to have to come from earnings, which means that the market is going to be much more sensitive to any earnings misses. You've got narrowness of the market and heavy reliance on the AI theme in terms of what's driving the market. You've got large fiscal deficits and you've also got heightened geopolitical and trade risks out there in the market. So I don't think this is a market right now where you need to go chasing risk. So, for example, in our own portfolios, we're overweight equities right now, but we're not using all of our risk budget. So if we were to see dislocations or opportunities in the market, we would look to deploy that. But we're not chasing risk right now. You mentioned from a region specific perspective, what we like. You know, I like the we like the US right now for the reasons that I've outlined, but valuations are high. So we are allocating to other regions as well, like Canada and Europe, really for diversification reasons. But also you're seeing more attractive valuations there. Elsewhere, you know, I think China and I am are becoming more attractive, particularly China, where you've really seen a bit of a shift in policy from the government there. So the government was very much focused on crowding out the private sector, whereas now they've shifted to really trying to support the private sector and support the technology sector. That in part has been driven by trade policy in the US and reducing access to chips for China. I think just given how negative sentiment had gotten on China, I think there is potential for further outperformance there. You are seeing strong performance from China and the end so far. And also valuations are quite attractive there as well. Outside, though, of equities in those regions and fixed income, I've mentioned that we do like a duration just given that the higher yields you're getting now versus the last decade plus and that ballast that duration can bring in a portfolio. We don't with tactically, we don't like spreads sectors, as I mentioned. So we're underweight from a tactical perspective, investment grade credit and in high yield debt. But we do like some of the more high yielding growth orientated fixed income areas like emerging market debt. So that's a little bit of a whistle top story in terms of some of our near term and tactical views right now, given the backdrop. But yeah, hopefully that's a fair overview for you. 
 
Blair 
That's great. Appreciate that. Shane, anything you want to add to that story, that little quick global tour? 
 
Shane 
Yeah, I mean, cautiously optimistic is the is the app description. And I think you kind of go back to what he was talking about with diversification, you know, to bring that back. I mean, when you call should be optimistic, it highlights the need for diversification, right? Not putting all your eggs, I suppose, into one basket, trying to spread those bets. Right. We talked about valuations like the S&P is trading on a multiple of twenty-two and a half times. You know, its historic average is 16. You're probably not going to get multiple expansion from here. And I suppose if you think back to our income generating strategies and our covered call strategy of where that sits into a portfolio, you know, historically, I suppose over long, long enough time periods, the real correlation between equity returns and valuations, we can't get away with it. We like it in the near term. That is still sitting out there as a risk. Equity returns are lower when they're when you buy them at a more expensive price. So for at least some of that exposure, you know, it may not be the worst idea to think about selling that upside in exchange for a more reliable income stream. That's exactly what the covered call strategy does. 
 
Blair 
OK, perfect. Thanks. Appreciate rounding that out. Shane, Leonie, thank you both for for sharing the insights so far today. We're going to move on to some of the questions from the audience here. You can see them on the screen as they're coming in. So let's start with this one for less sophisticated investors. Advise on any funds. And boy, this one's a nice setup for us from Canada Life that have a covered call strategy. And coincidentally enough, we have just launched these ones. There's a subset that are now available. And Shane, you're intimately involved with these. 
 
Shane 
Yeah, absolutely. We just launched three covered call strategies, one of the U.S. market, one on Canada and one on EFI, which is the international strategy. And yeah, it's launched in the last month and delivering that 5 percent income. And it's exactly as we described it, writing calls on those underlying ETFs and doing so in a very systematic and straightforward way. 
 
Blair 
OK, great. And I think that covers the next question here. We're just being asked to elaborate on that 5 percent annual distribution. There's income from the covered calls. There's income from various holdings in the strategy. So it is about that that total return that both you and Leone talked about. We've also got a question here for advisors working with retirees or those income focused clients, the decumulation phase. Which of these discussed today would you recommend as a starting point? And I think what I heard is maybe you want to think about combining multiple strategies. Leonie, maybe start with you. 
 
Leonie 
Yeah, absolutely. So I think when you're looking at a retiree or an income focused client, again, it's really sitting down understanding what are their income requirements first and foremost, and then importantly as well alongside that, well, what are their risk capability and ability to take risk? So typically what we would see is you would combine those strategies. So I think a multi asset approach is absolutely appropriate here, where you could have as a core or satellite allocation within your equity in that multi asset as a covered core type strategy alongside other income generating strategies. Particularly if you're looking at decumulation, there are very specific decumulation products out there as well that are more focused on retirees that have that blend of income inflation and also managing risk and sequencing risk. 
 
Blair 
And maybe we'll just go off the cuff here a little bit. And Shane, I'll start with you on this one. Where does this 5 percent target come from? I know that's a historical number but maybe let's just elaborate a little bit on why 5 percent. 
 
Shane 
Yeah, I mean, you can you set the target as to what income you're looking for. I think 5 percent is a reasonable number here. That 5 percent, as you described, it is coming from dividends. That will get you some of it. And the rest is coming from call options. What is really allowing you to do is balance those two competing requirements to deliver a solid level of income that as Leonie described, is hard to generate from bonds without taking, you know, going into the risk riskier sector of bonds. But it's also allowing you to stay in the upside and deliver some of that total return. So we're only selling call options on roughly half the equities in our portfolio. So the other half, you sort of are still participating in that upside. And we think over the long term, over a cycle, we should be able to deliver around 80 percent of the total return that the equity index delivers, as well as spitting out that 5 percent annualized distribution. So the 5 percent number is just allowing us to balance up the kind of the risk, the total return outcome and the income generation in a way that we think kind of makes sense to for those three separate components. 
 
Blair 
Yeah, something that's achievable without taking on too much undue risk. Great. Thanks. Shane, maybe I'll just stay with you. Can you elaborate? I know we touched on this a little bit, but how the covered call strategies generally perform in volatile markets. We've seen this a lot since probably since about 2018, where we don't really get the long gradual down and that U-shaped recovery. It tends to be much more V-shaped these days. 
 
Shane 
Yeah. Oh, yeah. This is the double-edged sword, right? It gives on the one hand, it takes away with the other. So if you think about how the strategy is structured, it can have challenges in volatile markets, right? Because you've sold some of the upside, but you haven't, you know, you're not buying a put on the downside. So you could argue it's more exposed on the downside than on the upside. So maybe it won't do as well. But there's something competing against that that helps you, which is that when the market gets volatile, the options increase in price by quite a considerable margin, right? Because the market gets very scared and the price of optionality increases dramatically. So the premium that you start getting for selling those call options does increase a lot. So, OK, there's a bit of asymmetry in the structure, which isn't good. But then on the other hand, you're offsetting that by when the market is very scared. That's actually when the options are most lucrative and adding the most income to your portfolio and the most return to your portfolio. 
 
Blair 
And Shane, I got to. Oh, sorry, go ahead. 
 
Leonie 
I was just going to jump in. I was just going to jump in and say, and Shane alongside that diversification of all the strategies. I couldn't help myself. 
 
Blair 
That's today's key word. 
 
Shane 
That's it. Exactly. Diversification your best friend and volatility strikes. Yeah. 
 
Blair 
Shane, here's a real technical one. How do you determine the expiration dates and the strike prices for the call options you're selling? 
 
Shane 
Yeah. So evidence based research-based thinking. Right. We've been running options strategies for many years. We've put them together for institutional clients. We've had put writing strategies since 2017. We've had the column in place since 2020. It's all about looking at the evidence and seeing what the most efficient delivery mechanism is when it comes to strike and expiry selection. And what we see is that when you're selling options, you want to be doing it in a way that reasonably short dated and you're able to recycle your exposure all the time. If it's too short dated, it can get a bit chaotic and that's terrible. If it's too long dated, it's too slow to generate the income. So roughly we're looking at that one month expiry that is accumulating the income in really the most efficient way. Again, balancing up those key components we talked about earlier, total return outcome, the risk side of it and generating the income. So relatively short dated, but not too short dated is the other. That's all based on scientific research, you know, back testing strategies, understanding how they do through cycles and the experience that we've built up and doing this. This is evidence-based stuff. 
 
Blair 
So mostly science, a little bit of art. 
 
Shane 
Absolutely. Yeah, absolutely. 
 
Blair 
What's the benefit of using an ETF in these strategies versus holding the equities directly? 
 
Shane 
Yeah, it's so ETFs and futures are what you need here. It's really just simplifying the strategy. Like options are complicated enough when you're introducing them. Doing that on top of a portfolio where you have 500 line items to replicate the S&P is adding a lot of complexity to your portfolio. So using the ETF is really just simplifying the lot of the investment manager here. And again, it's just about that efficient delivery of the equity upside. 
 
Blair 
OK, Shane, we're sticking with you. Derivatives are often associated with risk. I think maybe that is a perhaps a generalization. But in this case, with the derivative used in these income generating strategies, how would you categorize these? 
 
Shane 
Yes, so this is, I think, something we talked a little bit about earlier and maybe just want to make sure we're very clear on this. When you're long an equity asset and you've sold a call option on that asset and you bundle those two things together in one piece, the option is serving to reduce your overall risk. Your volatility when you put that together should be about 80 percent, 80 percent, 80 percent, maybe on average, of if you were just holding the equities. So the options here very much taking risk off the table when they're bundled together with that underlying risky asset. We're not adding risk, adding risk using them. And also really important to state any losses on that on that call option are covered by the underlying. And that's what gives it the name, the covered call strategy. So that the hint is in the name, I suppose, as you would say. 
 
Blair 
Yeah, exactly. Exactly. Maybe I'll take the first part of this. Is this the first of its kind? No, it's not. These strategies have existed in various forms. And you talked, Shane, about the institutional side. They have been around on the institutional side for a while. But bringing this to the retail market, the retail level investor is relatively new. 
 
Shane 
Yeah, I think that's fair. 
 
Blair 
And how long have you guys been doing this in your market? 
 
Shane 
So I mean, we've multiple types. I could see our derivative capability as having multiple sort of ways of delivering option overlays on equities in various forms. We probably did this the first time back in 2011, I think, when I was working in the quant strategies team, we put together sort of collar type strategies for a particular a particular consultant. We then we then did it for a large institutional client in Ireland in 2015. And then we launched systematic strategies on our own multi asset funds in twenty seventeen. So we've been doing this for a long time. We've plenty of experience in it. 
 
Blair 
Right. There's a question here about the five percent annual distribution being guaranteed. The guaranteed word, of course, often associated more with the seg fund side of the business. And we've got to seg funds, of course, available here at Canada Life. But that distribution, that's the target distribution is that five percent. 
 
Shane 
Target distribution, five percent. And just to remind everybody, there's no kind of capital guarantee or anything associated with this type of product. You do retain equity type risk for the most part. So while the volatility isn't going to be lower than the equity index, this is still very much a risky portfolio. 
 
Blair 
Yeah, great. Thanks. Leonie, I want to bring you back into the conversation. Feels like we've been letting you monopolize things here for a bit. And this is an interesting one. When a prospective client is is concerned, afraid of investing in the markets due to a lack of knowledge experience, what's the best way to approach the conversation, particularly perhaps as it comes to income generation? 
 
Leonie 
Yes, I think first and foremost, it's approaching the client. We're trying to understand specifically what are their needs and then coming to them with a solution to meet those needs. And when it's somebody who's afraid of investing, you know, you don't want to put them in too risky a product too soon. Right. Because even though they might have the capability to take risk, they're quite intolerant to risk and they're quite risk averse. So it's about getting that balance right. You don't want to scare them off too soon. Right. By putting them in 100 percent equity, even if they're 20 years old, because they might get scared by the first drawdown and end up not continuing their investment journey, which we know is a worse outcome. The other way to it is really around the educational piece. It's right. We love jargon. We love technical terms and language and acronyms in our industry. We're the worst. We do. But it's but it's about, you know, and I think Canada Life are really good at this. Blair, your team and we're we supported and Shane will on this product is just having really simple explainers for what these strategies are. And also managing explanations. So I think Shane, you've done a really good job in the session today of outlining the different type of environments of how this type of strategy works, where you would see upside, where you would see downside and what are the risks. So having those conversations early on so that they clearly understand what they're investing in and using that simple language is really key. Shane, anything that you would add to that? 
 
Shane 
No, I think that's it. Absolutely. Yeah, you don't want to start getting into the complexities of option terminology and too much of that. It's really about, you know, trying to explain what this is in simple terms like you've got an equity asset, you're giving up some upside and converting it into an income stream, that trade off, trying to make sure people understand that, understanding that the option is taking a bit of risk off the table rather than adding to us. Hopefully people can appreciate those kind of simple, not simple, but those sort of concepts without getting into the technicalities of what an option titles, the buyer and the seller to do, because that can all get kind of confusing for people. 
 
Blair 
Yeah. And I think, Leonie, even just where you started in terms of what is your Mr. and Mrs. client, what is your specific need? What problem are we looking to solve for you? And taking the conversation there can be a great starting point as advisors are having those great conversations with their clients. 
There's a question here, the names of the multi asset class funds on the on the Canada Life shelf. So there's a couple of different answers here. There are the risk managed portfolios. So there's a conservative, there's a balanced and there is a growth version of the Canada Life risk managed portfolios. 
We also have the Canadian, international and US enhanced equity income fund. So those are what you can look for as an advisor, as a client, ask your advisor how these may fit into your particular needs. And for our advisors on the line, your business development team will have all the available info, including the fund codes for you. Leonie, how have the recent interest rate cuts affected your investment strategies and the ability to meet fixed or target rate distributions? And then Shane will come to you for this one as well. 
 
Leonie 
Yeah. So in terms of the recent interest rate cuts, I think they were well flagged and they were well priced in by the market. So you tend to see the market move before you actually have the interest rate cuts that come through. From a tactical perspective, we have been overweight duration in our multi asset portfolios in anticipation and expectation of interest rate cuts. So that obviously has fed through in terms of our positioning and looking to benefit from rate cuts coming forwards. But again, it's about, you know, trying to navigate for multiple market environments, right? So thinking about where interest rate goes, it was short term, but also balancing with well, what are the income needs in a portfolio over the longer term? And again, it talks back to the point that you don't want to rely on a single income generating strategy, because if you were just relying on, say, a 10 year Canadian yield to deliver you that income and you know the interest rates are going to fall and they're already lower than their average history, you know, that's not going to be able to generate all of the income needs in a portfolio. But on the other hand, balancing that income and return perspective, knowing that rate cuts are going to come through or expecting rates and yields to fall can be a return driver in a portfolio when you're holding those assets. So it's about making sure that you're not relying on that one income generation. So, you know, we talked covered calls, but we also have things like property, higher yielding fixed income and dividend strategies in portfolios for income. So it's about getting that balance right. 
 
Blair 
Shane, do you want to add to that one? And then I'm going to go directly to you on the next question. 
 
Shane 
Yeah, indeed. I mean, I wouldn't have much to add. I'm just saying, Leonie said something interesting and it's true. You would think when rate cuts start that, you know, you start to see long term interest rates fall, but it doesn't necessarily happen that way. It's all about what's happening versus what the market expects and what's priced in. And when we saw rate cuts start, in fact, the market went the other way in bonds has widened because they really came through maybe slower than people expected. There was so much so much of the good stuff priced in and that it didn't quite come to fruition. So it's amazing how often they sort of buy the rumor and sell the event. Trade plays out. 
 
Blair 
Yeah, it's interesting how far long rates have stayed up. 
 
Shane 
Has isn't it? Oh, yeah, absolutely. 
 
Leonie 
Just about to say that you've got the difference between what's happening in the long end of the curve versus the short end. And part of that is just the large fiscal deficits and the large amount of debt out there. So it's not straightforward is the simple answer. 
 
Blair 
Yeah, definitely. Shane, just a point of clarification here on the income strategy. We talked about a 5 percent plus target in that neighborhood. So the overall income objective. We're trying to maximize income. I guess to use the phrase here in the question. 
 
Shane 
Yeah, we're trying to hit that 5 percent target kind of consistently. And we're doing that in a way that leaves enough room to participate in the equity upside. That's really the objective here. So we're not really trying to exceed it necessarily. If we start looking for 6, 7, 8 percent income, we're going to leave ourselves underexposed to markets if they rise a lot. So again, go back to that balancing, balancing up the key objectives. 
 
Blair 
Yeah, and the total return being a big part of that, too.  
  
Shane 
Yeah, indeed. 
 
Blair 
OK, one last technical question here. What's the current dividend distribution on the Canadian covered call option and what index are we linking to? 
 
Shane 
Yeah, so the TSX 60. So again, just for everyone's information as well, we are trying to trade things here where we have liquid options available. We're trying to trade listed options that have liquidity. So the TSX 60 is the index we are dealing with here. We're buying an ETF that tracks that index and then we're selling options on that ETF. The dividend yield on that index is 3-ish percent. I think it might be slightly, certainly in or around that 3 percent. So we're looking to supplement that with another 2 or so percent. I think it's 2.8 percent. And we're looking to get another kind of 2 and a bit percent to bring that up to 5 percent using the options. 
 
Blair 
OK, guys, that's it for the questions and some great questions. Thanks, everybody on the line who submitted questions. Great conversation today. A big thank you, Shane and Leonie, to the both of you for being with us today for sharing your perspective. There will be a recording of the event that will be available later this week in case anybody does want to watch it again or if you happen to miss part of it. 
So thank you, everybody on the line for investing the time with us today. We really do appreciate your time. The engagement we trust today's discussion has provided some clarity and sparked some ideas to help you in those great conversations with your clients, especially the decumulation and the income-focused clients that we talked about today. If you're an investor on the call today, I hope that today's insights have inspired you to maybe explore some new opportunities and to connect with your advisor. You can also visit our website to learn more. For our advisor colleagues, if you do have questions about anything that you heard today, please do reach out to your business development team partners. 
A reminder for our Quebec-based advisors, the CE quiz will appear on screen after the call ends. And then finally, your feedback is very important to us. Please do take a few minutes after the call here. There'll be a survey link that will come up that's going to appear on screen. Please let us know what you thought of today's event. We do hope to see you again at our next Market Connect event on November 12th. We will dive into the federal budget and what transpires from that announcement. Until then, take care and let's go Blue Jays. Thank you. 

Disclaimer

The views expressed in this commentary are those of Irish Life Investment Management (ILIM) as at October 21, 2025 and are subject to change without notice. 

The Canada Life Canadian Enhanced Equity Income Fund, Canada Life U.S. Enhanced Equity Income Fund and Canada Life International Enhanced Equity Income Fund (together, the “Funds”) seek to generate income and long-term capital growth through an options-based strategy designed to enhance cash flow and reduce portfolio volatility. The Funds aim to do this by selling (writing) call options on an equity index. Distributions to unitholders will depend on the yield from the underlying equity holdings and premiums from the written options and are not guaranteed. The amount and frequency of these distributions may vary with market conditions. Any portion of a distribution in excess of a Fund’s current and accumulated earnings and profits will be classified as a return of capital and reflects a return of the investor’s principal, not income or yield. Writing call options carries risks, including potential losses if the underlying assets must be sold below market value. Option premiums may underperform direct equity investments. Please refer to the Funds’ prospectus for more details of these and other risks.

The payment of distributions is not guaranteed and may fluctuate. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.This video is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances.This video may contain forward-looking information which reflect our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of the date of publication. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

Canada Life Mutual Funds and Counsel Portfolios are managed by Canada Life Investment Management Ltd. They are distributed by Quadrus Investment Services Ltd., IPC Investment Corporation, and IPC Securities Corporation, and may also be available through other authorized dealers in Canada. 

A description of the key features of the segregated fund policy is contained in the information folder. Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value. These funds are available through segregated funds policies issued by Canada Life.

Canada Life and design and Canada Life Investment Management and design are trademarks of The Canada Life Assurance Company. Other marks displayed in this piece are trademarks of their respective owners and used under licence or with permission.