- 2021 marked the Gateway Index/RA Composite’s (the Composite) highest calendar year return since 2003. Returns for the year were buoyed by relatively elevated implied volatility and active management focused on the higher volatility priced-into longer-dated call option contracts and a persistently above-average VRP.
- The Cboe® Volatility Index®, averaged 19.28 in the fourth 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 13.89% for the quarter.
- Over the first half of the year as the equity market advanced while implied volatility trended down, the investment team focused on exchanging index call options with contracts featuring higher strike prices. Over most of the second half of 2021, the team focused on extending weighted-average time to expiration to take advantage of the relatively elevated implied volatility priced into longer-dated contracts in an effort to maintain the Composite’s cash flow potential and typical risk profile. Adjustments to the Composite’s index put option portfolio focused on managing the cost of downside protection by trading select contracts well in advance of their expiration and replacing them with contracts featuring higher strike prices when the market was advancing. Significant changes to the Composite’s index put option portfolio included incrementally adding index put options in January, restoring full put coverage for the first time since early 2020, and lowering put coverage to a range of 80% to 95% on December 3 to opportunistically monetize the elevated implied volatility being priced into index put options. The Composite was restored to full put coverage on December 16.
Returns less than one-year are not annualized. Past performance is not indicative of future results. Data as of December 31, 2021, 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.