Neuberger put option funds aim to mitigate volatility

Neuberger Berman has launched to alternative investment Ucits that aim to deliver equity-like returns, but with lower volatility and stronger downside protection through put options.

The Neuberger Berman US Equity Index PutWrite and Global Equity Index PutWrite funds aim to achieve this through selling put options on US and Global equity indices combined with the conservative investment of underlying collateral.

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 firm’s quantitative and multi-asset class team has been running collateralised put writing strategies since 2011.

Dik van Lomwel, head of EMEA and LatAm, Neuberger Berman, comments says they are seeing increasing interest for their index-based, collateralised put writing strategies from clients anticipating growing volatility.

“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.”

The asset manager’s index put writing strategies are fully backed by cash and employ no leverage.