Put selling has been recommended in the current environment over long-only equities, with higher distributions across blue chip equity indexes, as reported by GMO.
In its Global Equity Insights report, Put Selling for Institutions, the firm says distributions from put writing strategies can deliver equity-like returns over the long term with less sensitivity to market valuations and smaller drawdowns compared to the equity market.
Distributions were 64 per cent higher in Euro Stoxx and 9 per cent higher for the FTSE, although the European outcome was tied to a particular sample window in which broad equities in the region declined by nearly 50 per cent.
While total distributions of put writing were almost on par with long-only equities in the US market, they were slightly higher, with a gap of 80 basis points.
“It stands to reason that distributions from put selling have done no worse than long-only equities and in some cases, especially in Europe, have performed materially better,” GMO noted.
“In the event that the path of an equity index is similar to that of the Euro Stoxx over the past 15 years, then distributions will likely be higher. We don’t claim that this result is always guaranteed, but seems to hold outside of extreme and prolonged bull markets.”
The characteristics of the put writing strategy, which typically include lower volatility and shallower drawdowns than long-only equities, allow capital to compound at a higher rate for investors with long time horizons, the firm added.
“In our analysis we compared the payout profile of put writing to long-only equities and found that put writing can support regular payouts and, in cases of down or flat markets, may allow for higher dollar payouts,” GMO said.
AMP has announced that it will not be issuing an interim dividend for the first half of 2019 after the sale of AMP Life looks set to fall ap...
Three Australian superannuation funds have joined a coalition of investors urging Amazon to explain labour rights in the retail giant’s o...
Despite protests from CBA, two law firms have been granted permission to work together to bring two separate class actions against the major...