Natixis Global Asset Management has launched the Gateway Equity Call Premium Fund, a new equity mutual fund managed by Gateway Investment Advisers.
With Gateway’s experienced team, the fund seeks to generate returns similar to the equity market, but with less volatility and downside risk than a long-only stock portfolio.
"Tools like the Gateway Equity Call Premium Fund are designed to help investors curb emotional responses to volatility and enhance their ability to build and maintain durable investment portfolios for the long haul," said David Giunta, President and CEO, Natixis Global Asset Management – U.S. Distribution.
"This fund aims to help investors benefit from market gains and to help avoid the negative effects of moving in and out of the markets at the wrong time."
The new fund employs a call-writing strategy similar to the one used by the flagship Gateway Fund (GATEX), an $8.2 billion fund that was established in 1977 with a 26-year track record utilizing its current investment strategy.
The strategy of the Gateway Equity Call Premium Fund is similar to several large accounts Gateway now manages, which total more than $1 billion in assets.
In addition to seeking low volatility, the new fund is managed to reduce the likelihood of capital gains distributions and maximize after-tax returns. Exchange-traded index options are given capital gains treatment, and the fund has a degree of flexibility to offset option gains with losses from stocks.
"Many investors prefer cash over uncertainty," said Paul Stewart, President, CEO and portfolio manager for Gateway. "The new fund’s options strategy generates cash flow by taking advantage of market fear. This cash flow helps lessen the effect of losses in the long portfolio should the market slide downward."
The Gateway Equity Call Premium Fund invests in a diversified portfolio of stocks that tracks the performance of the S&P 500 Index and is hedged with listed S&P 500 Index call options. Selling index call options trades the unknown outcome of equity market performance for a known and immediate cash flow.
The cash flow can provide: 1) a positive return in a flat or slowly rising market and 2) the potential to mitigate losses in a declining market. As a result, the fund offers lower equity market beta – a measure of the risk arising from exposure to the stock market – and volatility levels. It also offers a low correlation to fixed-income benchmarks such as the Barclays U.S. Aggregate Bond Index.
The Fund’s benchmark is the Chicago Board Options Exchange (CBOE) S&P 500 Buy-Write Index (BXM?), a benchmark index created by the CBOE in cooperation with Standard & Poor’s, which is designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index.
The fund is co-managed by a team led by Mike Buckius, CFA, who is also the firm’s chief investment officer and has been with Gateway for 15 years. The other co-managers are Ken Toft, CFA, and Dan Ashcraft, CFA, who have been with the firm for 22 and five years, respectively.