WisdomTree launches S&P 500 PutWrite ETF in Europe

May 30th, 2018 | By | Category: Alternatives / Multi-Asset

WisdomTree has brought its PutWrite strategy to Europe with the launch of the WisdomTree CBOE S&P PutWrite UCITS ETF (PUTW LN) on London Stock Exchange, and further listings pending on Xetra and Borsa Italiana.

Christopher Gannatti, WisdomTree head of research in Europe

Christopher Gannatti, WisdomTree head of research in Europe.

The fund tracks the Cboe S&P 500 PutWrite Index, a reference that is often used by investors as a solution to potentially increase the yield and lower the volatility of equity returns over various market cycles.

The index consists of overlaying S&P 500 short put options over a money market account invested in one- and three-months Treasury bills. The puts are struck at-the-money and are sold on a monthly basis, usually on the third Friday of the month.

The fund’s strategy of selling cash-secured put options may serve to enhance the return of a portfolio with a long S&P 500 Index exposure if the investor believes the market will move sideways or trend upwards. The return on an investment in PUTW in this instance is equal to the premiums obtained from selling the put options, plus the yield on collateral.

If, however, the value of the S&P 500 Index falls below the Put’s strike price, the option finishes in-the-money and the fund pays the buyer the difference between the strike price and the value of the S&P 500 Index. In this scenario an investor with a long S&P 500 exposure who engages in a put-writing strategy would be exposed to a decrease in value of their S&P 500 portfolio, as well as their obligation to the buyer of the option.

Christopher Gannatti, WisdomTree head of research in Europe, commented, “With the S&P 500 at or near record highs and investors having enjoyed a strong run of performance, we believe that it could be time to position for greater future volatility and downside risk. This strategy is designed with that in mind, as the option premiums collected cushion downside risk and those premiums also typically rise during bouts of market volatility.”

Rafi Aviav, WisdomTree head of product development in Europe, added, “As investors search for investment opportunities that lie outside traditional asset classes and beyond common risk factors, PUTW offers a unique source of return by delivering an institutional options strategy in a widely accessible UCITS ETF wrapper. For assuming the risk of market losses through the put positions, the ETF earns a ‘volatility risk premium’ which can diversify investors’ sources of return and reduce the volatility of equity returns in portfolios.”

Historically, the CBOE S&P 500 PutWrite Index has had similar returns to the S&P 500 Index with less risk, so blending the two indices could offer attractive risk-adjusted returns: PUT provided over 97% of the return of the S&P 500, but had only two-thirds the standard deviation of the S&P 500. Blending incremental amounts of PUT with the S&P 500 consistently lowered the risk while maintaining over 97% or more of the returns of the S&P 500.

PUTW has a total expense ratio of 0.38% and trades in US dollars.

WisdomTree launched the strategy in the US in February 2016 with the introduction of the WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUT US). PUT also costs 0.38% and currently has assets under management over $200 million.

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