- After advancing in the first two months of the quarter, the culmination of concerns over coronavirus variants, the outlook for inflation, potential negative impacts of China’s largest property developer falling short on its debt obligations and the struggle of U.S. lawmakers to agree to terms that would avoid a government shutdown led to a new year-to-date max drawdown for the equity market. From September 2 through quarter-end, the S&P 500® Index returned -4.97%.
- The Gateway Index/RA Composite (the Composite) provided equity market participation and consistent downside protection throughout the quarter. Downside protection in September did not make up for a lagging return from the beginning of the quarter through September 2. Due to the Composite’s low-risk profile, lagging returns are expected when the market advances at an above-average rate
- Implied volatility, as measured by the Cboe® Volatility Index (the VIX®), averaged 18.29 in the third quarter of 2021. Consistent with its normal relationship, average implied volatility exceeded realized volatility, as measured by the standard deviation of daily returns for the S&P 500® Index, which was 11.16% for the quarter. Implied volatility was generally rangebound until September when it shifted higher on an array of growing investor concerns.
- As the market advanced in July and August, Gateway’s index call option activity focused on trading contracts well in advance of their expiration dates to take advantage of elevated implied volatility priced into longer-dated contracts. Index call option activity in September was selective, with a focus on patiently earning the time premium priced into the longer-dated written index call options in the Composite’s portfolio. The investment team took advantage of relatively low implied volatility early in September to raise the weighted-average strike price of the purchased index put option portfolio while extending the weighted-average time to expiration.
* 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. Returns less than one-year are not annualized. Data as of September 30, 2021, unless noted otherwise. Past performance is not indicative of future results. Data Sources: Morningstar DirectSM and Bloomberg, L.P.