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Talk to UsIn today’s challenging market environment, US equity large-cap valuations are elevated versus history and return expectations are muted. We think buy-write strategies are worth a closer look in periods like the present.
Buy-write strategies offer exposure to equities but also seek additional income through call-option premiums. In times of modest equity returns, these strategies have often outperformed. For instance, the buy-write approach has beaten the S&P 500 Index more than eight out of ten times when the S&P returned 0-5% (Exhibit 1), and more than nine out of ten times when the S&P declined. (In times of high equity returns, these strategies have often trailed the broader equity market.)
If, as we expect, equity markets turn in a muted performance in the coming years, buy-write strategies could again find themselves in a sweet spot.
Source: Bloomberg and GSAM. Buy-Write strategies are represented by the CBOE S&P 500 BuyWrite Index. Analysis from January 1988, the inception of the S&P 500 Total Return Index, through August 2016. Frequency of outperformance is calculated by comparing the percentage of times the CBOE S&P 500 BuyWrite Index outperformed the S&P 500 Total Return Index on a 12 month rolling return basis. The average outperformance is calculated over the same time period. A Buy-Write strategy refers to an investment strategy that consists of receiving call premiums on an underlying equity position to generate income from the premiums. The CBOE S&P BuyWrite Index’s performance is not necessarily reflective of all Buy-Write strategies. Past performance does not guarantee future results, which may vary.
The Fixed Income Team, with more than 225 investment professionals, manages investment products to pursue strong, consistent performance across the fixed income market.
