In recent years, equity returns have been difficult to beat. Today, however, rich valuations may require investors to temper their return expectations. With long-term annualized equity returns potentially moderating in the coming years, we believe buy-write strategies—which sell call options in pursuit of premium income—may be an equity strategy worth understanding.
In the current environment, we believe investors shouldn’t assume double-digit equity returns will continue indefinitely. We would point out that long-term returns are averages—and averages may be less relevant in the event of shifting market dynamics. As investors have recognized elevated equity valuations and their potential implications for moderate future returns, we believe call writing warrants consideration.
