Gain equity exposure at reduced risk
Gateway's Active Overwrite strategy is a low-volatility equity strategy that combines an index-like portfolio of underlying equity securities with actively managed index call options1. This strategy is a flexible, yet disciplined approach to index option overwriting with the objective of outperforming the Chicago Board Options Exchange (CBOE®) S&P 500 BuyWrite Index (the BXM℠) 2 over the long term while delivering risk management benefits to investors.
Owning a diversified equity portfolio similar to a broad-based index, while also selling index call options, has the potential to capture the benefits of equity investing while reducing risk. If the underlying index rises, the portfolio can participate in this advance, but generally not beyond the amount of premium received from the sale of call options. If the underlying index falls, call option premium can potentially offset the drop in value of the portfolio's equities. This can result in either a smaller loss for the portfolio relative to the index, or a slight gain versus a loss for the index (depending on how much equities decline relative to call premium earned).
Low-Volatility Equity Profile
The strategy exhibits characteristics of high equity correlation with reduced beta and standard deviation, which can provide downside protection with the potential to capture a majority of the market's return over a full market cycle. The structure of the Active Overwrite strategy gives it increased market exposure in comparison to that of the Flagship Strategy, which also utilizes purchased index put options to hedge portfolios.
Periods over 1 year are annualized
*The Gateway Active Index-Option Overwrite Composite has an inception date of April 1, 2008
** Based on monthly performance
Datasource: Morningstar Direct™
Past performance does not guarantee or indicate future results.
Active Overwrite is a multi-faceted strategy with the flexibility to support many applications. Within a portfolio, this strategy can act as:
- A core equity strategy
- A complement to plan immunization/liability matching
- A component to an alternative program
Active Overwrite Factsheet
Active Overwrite Commentary Q1 2017
To read about the case for an index approach to low-volatility equity, please click here - The Journal of Investing: Option-Writing Strategies in a Low-Volatility Framework
1 Selling index call options can reduce the risk of owning stocks, but it limits the opportunity to profit from an increase in the market value of stocks in exchange for up-front cash at the time of selling the call option.
2 The Chicago Board Options Exchange (CBOE®) S&P 500 BuyWrite Index (the BXM℠) is a passive total return index designed to track the performance of a hypothetical buy-write strategy on the S&P 500® Index. The construction methodology of the BXM℠ includes buying an equity portfolio replicating the holdings of the S&P 500® Index and selling a single one-month S&P 500® Index call option with a strike price approximately at-the-money each month on the Friday of the standard index option expiration cycle and holding that position until the next expiration.
Gateway Active Index-Option Overwrite Composite performance shown in this illustration is an asset-weighted composite of discretionary accounts under Gateway's management which share the same investment objectives and hedging strategies. The composite was created in April 2008.
Gateway Active Index-Option Overwrite Composite performance reflects the deduction of investment advisory fees and the reinvestment of dividends and other earning. A more detailed description of Gateway's fees is included in Form ADV, Part 2. Past performance is no guarantee of future results. Annual Disclosure Presentation. Terms to know.
S&P 500 Disclosure
The S&P 500 and the CBOE S&P 500 BuyWrite Index are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and the Chicago Board Options Exchange (“CBOE”), and have been licensed for use by Gateway Investment Advisers, LLC (Gateway). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). CBOE® and BXM® are registered trademarks of the Chicago Board Options Exchange. The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by Gateway. Gateway’s Active Index-Option Overwrite Composite is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or CBOE. Neither S&P Dow Jones Indices nor CBOE make any representation or warranty, express or implied, to the owners of the Gateway Active Index-Option Overwrite Composite or any member of the public regarding the advisability of investing in securities generally or in the Active Index-Option Overwrite Composite particularly or the ability of the S&P 500 Index or the CBOE S&P 500 BuyWrite Index to track general market performance. S&P Dow Jones Indices and CBOE’s only relationship to Gateway with respect to the S&P 500 Index and the CBOE S&P 500 BuyWrite Index is the licensing of the Indices and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P 500 Index and CBOE S&P 500 BuyWrite Index are determined, composed and calculated by S&P Dow Jones Indices or CBOE without regard to Gateway or the Gateway Active Index-Option Overwrite Composite. S&P Dow Jones Indices and CBOE have no obligation to take the needs of Gateway or the owners of the Gateway Active Index-Option Overwrite Composite into consideration in determining, composing or calculating the S&P 500 Index or the CBOE S&P 500 BuyWrite Index. Neither S&P Dow Jones Indices nor CBOE are responsible for and have not participated in the determination of the prices, and amount of the Gateway Active Index-Option Overwrite Composite or the timing of the issuance or sale of the Gateway Active Index-Option Overwrite Composite or in the determination or calculation of the equation by which the Gateway Active Index-Option Overwrite Composite is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and CBOE have no obligation or liability in connection with the administration, marketing or trading of the Gateway Active Index-Option Overwrite Composite. There is no assurance that investment products based on the S&P 500 Index or CBOE S&P 500 BuyWrite Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR CBOE GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500 INDEX, CBOE S&P 500 BUYWRITE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND CBOE SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND CBOE MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY GATEWAY, OWNERS OF THE GATEWAY ACTIVE INDEX-OPTION OVERWRITE COMPOSITE, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR CBOE S&P 500 BUYWRITE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR CBOE BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND GATEWAY, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.