Gateway Investment Advisers Chief Investment Strategist David Jilek helped put the recent market turbulence in perspective in this episode of Money Life with Chuck Jaffe (moneylifeshow.com). Highlights include:
- The three-year return of the S&P 500® was over 100% as of December 31, 2021.
- That’s quite rare and is usually a sign that markets are likely to have above-average volatility over the next few years – which is what we have seen so far in 2022.
- As option managers, Gateway uses index options to manage risk in their strategies, and they pay very close attention to forward pricing of volatility.
- The strategies are always at least partially exposed to the equity market but never fully exposed – they are hedged, resulting in a risk profile similar to a balanced fund but without the reliance on fixed income.
- This type of approach can benefit from higher market volatility because that means higher option prices, and the strategies sell options as a means of risk reduction.
All investing involves risk, including the risk of loss. There can be no assurance that developments will transpire as forecasted. Actual results may vary. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Equity Securities Risk: Equity securities are volatile and can decline significantly in response to broad market and economic conditions.
Options Risk: Options may be used for hedging purposes, but also entail risks related to liquidity, market conditions and credit that may increase volatility. The value of the fund’s positions in options may fluctuate in response to changes in the value of the underlying asset. Selling call options may limit returns in a rising market.
CBOE Volatility Index (VIX) is a real-time index that represents the market's expectations for the relative strength of near-term price changes of the S&P 500 index (SPX). It is derived from the prices of SPX index options with near-term expiration dates, and it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants.
S&P 500® Index is a widely recognized measure of U.S. stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large- cap segment of the US equities market.
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