Neuberger Berman has broadened its suite of alternative investment solutions with the launch of two UCITS funds employing collateralised index put writing strategies.
The Neuberger Berman US Equity Index PutWrite and Global Equity Index PutWrite funds seek to generate attractive risk-adjusted returns through the harvesting of premiums from selling put options on US and global equity indices, respectively, and the conservative investment of underlying collateral.
Volatility of this strategy is generally lower than the underlying equity indices as investors typically experience lower up market and down market capture than the underliers. Therefore, over time, this strategy aims to provide exposure to equity-like returns, but with lower volatility and stronger downside protection.
Doug Kramer, co-head of quantitative and multi-asset class investments at Neuberger Berman, says: “Many investors know that buying downside protection with put options can be quite expensive in the long run. Reducing tail risk, dampening volatility and minimising capital erosion comes with a price. Even though put options are expensive in the long-run, there will always be demand for them in the short-run, as many investors simply cannot stomach short-term volatility. We can take a long-term view and take advantage of this.
“In the liquid and deep exchange-traded put option markets, it pays to be a long-term seller. Collateralised put writing is another way of getting exposure to the equity market, but with less downside and lower volatility – particularly important characteristics for clients looking to preserve capital and meet liabilities or investment goals over the long term.”
The Neuberger Berman US Equity Index PutWrite Fund was launched on 30 December 2016 while the Global Equity Index PutWrite Fund went live on 3 May 2017.
The funds are managed by Neuberger Berman’s options group investment team – which is part of the firm’s quantitative and multi-asset class team and has been running collateralised put writing strategies since 2011. Derek Devens, managing director, is the fund’s senior portfolio manager and he is supported by research analysts Rory Ewing and Eric Zhou.
Dik van Lomwel (pictured), head of EMEA and LatAm, Neuberger Berman, says: “We are seeing increased interest for our index based, collateralised put writing strategies from clients who are anticipating growing volatility in the markets and need compelling solutions to mitigate this. Traditional ‘low volatility’ equity sectors could be vulnerable as interest rates rise, whilst there is frustration with the many hedge funds that have not delivered on their objectives. Put write strategies can offer positive returns even while volatility remains low, whilst improving an investor’s risk/return profile.”
Neuberger Berman’s index put writing strategies are fully backed by cash and employ no leverage. The funds are sub-funds of the Irish-domiciled UCITS fund umbrella, Neuberger Berman Investment Funds plc. They are registered for sale in the UK and across Europe.