Mulvihill's XLVE: A Steady Hand in Healthcare's Dividend Landscape

In an era of economic uncertainty, the healthcare sector remains a bastion of stability, driven by aging populations, rising healthcare spending, and innovation in biotechnology and pharmaceuticals. The Mulvihill U.S. Health Care Enhanced Yield ETF (XLVE) positions itself at the intersection of income generation and sector resilience, leveraging monthly distributions, a focus on large-cap healthcare giants, and an active options strategy to boost returns. Here's why investors seeking steady income and capital appreciation should take note.

Monthly Distributions: A Cadence for Income Seekers

While many healthcare ETFs, like the Health Care Select Sector SPDR Fund (XLV), pay quarterly dividends, XLVE stands out by offering monthly distributions, a feature designed to meet the cash flow needs of retirees or income-focused investors. As of late 2024, its distributions averaged $0.0583 per unit monthly, translating to an annualized payout of approximately $0.70 per share. While the exact 2025 yield isn't specified, this consistency—backed by the sector's defensive nature—suggests stability in uncertain markets. Compare this to XLV's 1.77% yield (as of June 2025) but quarterly payments, and XLVE's cadence becomes a compelling advantage for those prioritizing liquidity.

Sector Exposure: Anchored in Large-Cap Stability

XLVE targets large-cap U.S. healthcare companies, such as Johnson & Johnson, Merck, and Eli Lilly, which dominate pharmaceuticals, medical devices, and biotechnology. These firms benefit from structural tailwinds: an aging global population drives demand for chronic disease treatments, while breakthroughs in gene therapy and AI-driven drug discovery fuel innovation. The ETF's top holdings are also dividend stalwarts, with histories of consistent payouts even during recessions. This focus on stability aligns with the sector's reputation as a “recession-resistant” play, offering both income and capital preservation.

The Call Option Edge: Enhancing Yield and Reducing Volatility

XLVE's active management strategy adds a layer of sophistication. The fund uses call options—specifically, selling covered calls on 25% of its portfolio—to boost income and dampen volatility. Selling calls allows the ETF to collect premiums, which supplement dividends, while capping potential upside in exchange for downside protection. This approach is particularly effective in sideways markets, where the option premiums provide a steady income stream. While this strategy may limit gains in bull runs, it aligns with the ETF's dual mandate of income and risk mitigation.

Expense Ratio: A Trade-Off Worth Considering

XLVE's 0.65% expense ratio is notably higher than XLV's rock-bottom 0.08%, but it reflects the cost of active management and option strategies. While passive ETFs like XLV offer cost efficiency, their static approach may miss opportunities to enhance yield through derivatives. For investors willing to pay a premium for active oversight and income optimization, XLVE's fees are justified—especially if the call option strategy consistently outperforms benchmarks over time.

Risks and Considerations

No investment is without risks. Healthcare stocks face regulatory hurdles (e.g., drug pricing debates) and biotech volatility tied to clinical trial outcomes. Additionally, XLVE's call options could cap upside in a roaring market. However, the fund's large-cap focus and diversified portfolio (64 holdings as of 2024) mitigate these risks. Investors should also note that monthly distributions may be partially return of capital, depending on the fund's performance—a detail to monitor in tax planning.

The Bottom Line: A Resilient Income Machine

For investors seeking monthly income in a sector insulated from economic cycles, XLVE offers a compelling blend of stability and yield enhancement. While its expense ratio is higher than passive peers, the active strategies and dividend cadence provide a niche advantage. Pair this with the healthcare sector's long-term growth drivers—aging demographics, innovation, and essential demand—and XLVE emerges as a solid core holding for portfolios prioritizing both income and resilience.

Recommendation: Investors looking to diversify their income streams or hedge against market volatility should consider XLVE as part of a balanced portfolio. Its monthly distributions, large-cap exposure, and active yield-boosting strategies make it a standout option for those willing to pay a modest premium for active management in a defensive sector.