Since the start of the 2023, the Gateway Active Index PutWrite Composite (the Composite) climbed 12.38%, net of fees, compared to the 12.54% and 16.89% return of the Cboe® S&P 500 PutWriteSM Index (the PUTSM) and the S&P 500® Index, respectively. Robust volatility continued to support higher index option premiums and potential net cash flow during the quarter, which helped the Composite participate in the intra-quarter market advances while providing loss mitigation during periods of decline. The Composite’s active and diversified approach resulted in a typical amount of market exposure, while the passive, rules-based timing of the PUTSM’s replacement of its single written index put option contract resulted in the PUTSM having less exposure than usual during the advance.
Premiums collected from writing options provided significant downside protection during the March 31 through May 4 decline. Specifically, the Composite provided 66 basis points (bps) of downside protection relative to the S&P 500® Index with a return of 0.40%, net of fees, while the PUTSM returned 0.28%. Premiums collected on written options also supported strong participation in the market’s advance from March 4 through quarter-end. The Composite returned 5.61%, net of fees, and the PUTSM returned 5.12% during this market advance as the S&P 500® Index climbed 9.91%.
The Composite’s index put option writing generated risk-reducing cash flow throughout the quarter and gains on written index put option positions contributed to downside protection during the market’s shallow decline at the start of the quarter. Index put option positions positively contributed to returns throughout the quarter.
In achieving its low-volatility objective, the Composite’s annualized standard deviation of daily returns for the quarter was 5.64% compared to 11.88% and 5.64% for the S&P 500® Index and the PUTSM, respectively. The Composite exhibited a beta to the S&P 500® Index of 0.45 for the quarter.
Gateway’s investment team was active in its management of the Composite’s index option portfolio during the quarter. Adjustments to the written index put option portfolio initially focused on maintaining equity market exposure and enhancing cash flow potential through the monetization of robust volatility levels. During periods of market advance, the team was patient in exchanging select index put option contracts in advance of their expiration dates for ones with later expiration dates and higher strike prices to maintain a typical level of market exposure and enhance net cash flow potential.
At the end of the quarter, the full value of the Composite’s maximum potential loss on written index put options was secured with Treasury bills and cash. The Composite’s diversified portfolio of written index put options had a weighted-average strike price between 1.5% in-the-money and 1.5% out-of-the-money, weighted-average time to expiration of 50 days and annualized premium to earn between 5.0% to 7.5%. Relative to the beginning of the quarter, this positioning represented slightly higher market exposure and lower cash flow potential.
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 June 30, 2023, unless noted otherwise. Data sources: Morningstar DirectSM and Bloomberg, L.P.