XAI Madison Equity Premium Income Fund

MCN reported a 2025 NAV return of 9.92 versus 8.91 for the BuyWrite Index benchmark. Management said the fund was up in line with the market in the fourth quarter, technically outperforming by a couple of basis points, while the market itself was up 2.7% and the Magnificent 7 were up 4.5% in the quarter. The portfolio was roughly 87% covered by call options at year-end, and the fund’s 2025 distribution was comprised entirely of net investment income with no return of capital. Looking ahead, management did not give formal numeric guidance, but said it expects continued benefit from a more volatile market, a broader set of sector leaders, and a defensive posture if valuations remain elevated.

Ray Di Bernardo, the lead portfolio manager, emphasized that MCN’s active and defensive approach was a good fit for a year marked by volatility, a narrow mega-cap led rally, and then a late-year broadening of market leadership. He said the fund was intentionally underweight many of the high-flying Magnificent 7 areas earlier in the year, which hurt at times, but that the stance is starting to work better as leadership shifts toward other sectors. His tone was cautious but constructive, with repeated emphasis on staying defensive because of stretched valuations and ongoing AI-related disruption.

Drew Justman focused on the fund’s income structure and distribution policy. He said monthly distributions better smooth cash flow, give investors more frequent payouts, and do not change daily portfolio management. Management also highlighted that the 2025 distribution was entirely net investment income and that there was no return of capital, which they framed as an important point for closed-end fund investors. On portfolio construction, Ray added that the fund typically stays 75% to 80% covered even when neutral and was at 87% coverage at year-end because the team wanted more defense.

The main questions centered on why the fund moved from quarterly to monthly distributions, how volatility affects option writing, how much of the portfolio is covered, and why trading volume and discounts widened in 2025. Management said monthly payouts better match shareholder preferences for income and improve cash flow flexibility, while volatility can help option income when it rises, but the strategy can still generate distributable income in low-volatility markets through realized gains and portfolio income. On the discount and trading-volume discussion, Ray said the wider discount and higher volume likely reflect shifting investor psychology as the market becomes less one-directional and more focused on protection rather than full participation in a rising market.