The Gateway Active Index-PutWrite Composite (the Composite) provided strong market participation and downside loss mitigation as it continued to benefit from an environment of higher interest rates and robust volatility. The Composite’s index put option writing generated risk-reducing cash flow throughout the quarter, and gains on written index put option positions positively contributed to return during July. After a strong July, the S&P 500® Index returned -6.28% from July 31 through September 30. The Composite provided 310 basis points of downside protection during this decline with a net of fee return of -3.18%, and the PUTSM returned -4.38%.
In achieving its low-volatility objective, the Composite’s annualized standard deviation of daily returns for the quarter was 7.26% compared to 10.81% and 6.29% for the S&P 500® Index and the PUTSM, respectively. The Composite exhibited a beta to the S&P 500® Index of 0.65 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 focused on incrementally decreasing the weighted-average strike price while taking advantage of increases in implied volatility to enhance cash flow potential and maintain a typical level of market exposure.
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 greater than 2.5% in-the-money, weighted-average time to expiration of 38 days and annualized premium to earn of less than 2.5%. 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 September 30, 2023, unless noted otherwise. Data sources: Morningstar DirectSM and Bloomberg, L.P.