Most of the Composite’s outperformance relative to the BXMSM occurred during March, as its active approach led to consistent market exposure and risk profile throughout the month, while the BXMSM’s single-contract, rules-based approach led to relatively high equity market exposure during the market’s intra-month decline. Specifically, the Composite* returned 4.93% compared to the 4.61% return of the BXMSM from the start of 2023 through February 2. The S&P 500® Index returned 8.98% in this period. During the equity market advance from March 13 to the end of the quarter, the Composite’s* 4.99% outpaced the 4.17% return of the BXMSM while the S&P 500® Index climbed 6.67%.
The Composite’s index call option writing generated risk-reducing cash flow throughout the quarter and gains on written index call option positions contributed to downside protection during the market’s decline. Index call option positions detracted from returns in January and March which is expected during sharp market advances. In achieving its low-volatility objective, the Composite’s annualized standard deviation of daily returns for the quarter was 10.22% compared to 16.80% and 9.37% for the S&P 500® Index and the BXMSM, respectively. The Composite* exhibited a beta to the S&P 500® Index of 0.58 for the quarter.
Gateway’s investment team was active in its management of the Composite’s index option portfolio during the quarter. As the equity market trended down from February 2 to March 13, adjustments to the written index call option portfolio focused on lowering the weighted-average strike price to maintain market exposure that is consistent with its typical profile while taking advantage of elevated implied volatility to enhance cash flow potential. During periods of market advance, the team exchanged select index call option contracts well in advance of their expiration dates for ones with later expiration dates and higher strike prices. These adjustments were made to benefit from the relatively elevated volatility priced into later-dated contracts.
All performance data presented is net of fees. Returns less than one-year are not annualized. Past performance does not guarantee future results. Data as of March 31, 2023, unless noted otherwise. Data sources: Morningstar DirectSM and Bloomberg, L.P. *The portfolio statistics reflected for the Composite are those measured by a representative account. This information represents supplemental information to the GIPS® Composite Report. This representative account was selected as it is the largest account in the Composite.