During shifting markets, many investors may reexamine their equity allocations or search for opportunity for cash sitting on the sideline. 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.

A strong foundation

The Capital Appreciation Premium Income ETF is a new member of the Capital Appreciation suite. The full suite represents a set of investments managed or comanaged by David Giroux and a team of tenured portfolio managers who draw on similar approaches and principles:

• Looking for opportunities (like durable inefficiencies) in the market that can be exploited to enhance returns and
• Seeking to deliver outcome‑focused solutions.

“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 award¹ 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 aims to offer 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.”

“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.”

TCAL primarily invests in the securities of high-quality, low-beta, U.S. large-cap companies, using a covered call option writing strategy to seek to preserve principal and mitigate downside risk.

• Investment selection: TCAL favors the stock of companies that are less volatile, are higher quality, and pay healthy dividends. It aims to avoid companies that could be riskier, like poor capital allocators or those facing persistent headwinds, such as shifts in consumer behaviors or disruptive competition. By writing call options on the stocks of these companies and capturing a premium, we seek to further offset downside risk for those names, supporting the preservation of capital.
• Income generation: The fund offers two powerful sources of current income in call option premiums and equity dividends. TCAL’s approach to writing covered calls on individual securities seeks to maximize income compared with most competitor approaches that overwrite an entire index. Put another way, because single stocks are more volatile than an index, the premium received to write individual calls provides higher income. It’s our belief that most competitors don’t take this approach because of the significant operational complexity, whereas the Capital Appreciation team’s experience and expertise in the process can provide a competitive edge.
• Risk mitigation: The fund incorporates risk analysis at every step of the investment process. TCAL’s experienced portfolio managers combine a deep understanding of individual companies with proprietary quantitative tools to uncover opportunities where the risk/reward setup looks compelling.

Navigating uncertainty

Investors often look for opportunities to keep the value of their investments intact and ways to generate more income, and this becomes especially important during volatile markets. TCAL seeks to deliver high distribution yield, uncorrelated with interest rates, and to preserve investor principal over time. This is done using covered calls to generate cash flows in addition to dividends received via the fund’s equity investments.

“TCAL seeks to deliver high distribution yield, uncorrelated with interest rates, and to preserve investor principal over time.”

TCAL is part of the Capital Appreciation suite and may be an option for more risk-averse investors looking for current income while preserving their original investment. The entire suite shares a common investment philosophy, a commitment to rigorous, bottom-up fundamental research, and an emphasis on managing downside risk. Each portfolio offers a different approach to seeking capital appreciation and income:

• Capital Appreciation Fund I Class (TRAIX)—closed to new investors) has more of a growth‑oriented strategy. Under Giroux’s leadership, the Capital Appreciation Fund finished 2024 beating its Morningstar peer group average for 17 consecutive years,² setting a singular record for the most consecutive calendar years a U.S. equity or multi‑asset fund has done so under the same portfolio manager.
• Capital Appreciation and Income I Class Fund (PRCHX) seeks total return through a combination of income and capital appreciation.
• Capital Appreciation Equity ETF (TCAF) emphasizes capital growth with controlled risk through an all-equity portfolio. TCAF is an exchange‑traded fund (ETF) that is fully invested in equities, primarily in the United States.
• Capital Appreciation Premium Income ETF (TCAL) seeks to deliver regular distributions while aiming for capital preservation with potential for capital appreciation. TCAL is fully invested in equities, primarily in the United States, with covered call options written over most or all of the portfolio.

T. Rowe Price active ETFs offer investors the investment expertise and research capabilities of the organization, along with the advantages of the ETF structure: convenience, tax efficiency, and cost-effectiveness.