Performance & Volatility
Last valuation date : 17-04-2019
Risk / Return from 02-01-2003
All information for an index prior to its Inception Date is back-tested, based on the methodology that was in effect on the Inception Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.
The key elements of the index methodology are available upon demand.
Natixis has developed an overlay solution aiming at reducing volatility and drawdown when combined with a long equity investment. The Natixis Smart Call Overwriting US Index objective is to cash in the risk premia embedded in the S&P® 500 Index options by a daily systematic sale of call options. The strikes of the Options are determined on the basis of an Index Sponsor’s proprietary methodology through the level of a “Risk Regime” used to detect sudden changes in market trends. The Risk Regime is a Natixis proprietary signal dedicated to US zone, calculated with a systematic methodology using objective market parameters.
The strategy is a synthetic rolling strategy consisting of a systematic daily sale of call options on the S&P® 500 as followed: a daily rolled short call position with 10 business days and strike levels varying from 100% to 106%. The underlying strategy is expected both to add negative correlation to a long beta allocation and to monetize the dearness of implied volatility. Outperformance versus the benchmark is noticeable in periods of extreme economic distress. Conversely, the index performs poorly when the benchmark rallies consistently, as the strikes of the short call options move deeper in the money. The strategy dynamically adjusts strike levels based on the Natixis Advanced Risk Perception Indicator (ARPI): • Strikes are closer to the money when the market risk indicator is high: this aims at limiting the volatility and drawdown of the equity portfolio in high risk regimes. • Strikes are further from the money when the market risk indicator is low: this aims at benefiting from potential positive equity performance in low risk regimes.
Why Selling Short-Term Options? • Selling calls monetizes the dearness of implied volatility as it is statistically higher than realized volatility while providing more gains than losses. • Selling short term calls also optimizes the carry: reducing the call maturity and increasing the frequency of sale does not statistically increases the risk while increasing the income. Why Variable Call Strikes? • In bullish equity markets, the risk in short call options increases. Increasing the options strikes to 106% enables to mitigate the above risk. • In bearish equity markets, the risk in short call options decreases. Decreasing the options strikes to 100% enables to cash in the dearness of the implied volatility whilst maintaining an acceptable level of risk. • A trend following indicator determines the equity market environment (bullish of bearish). The level of a “Risk Regime” varies from 1 to 4. A Risk Regime of 1 indicates that the market is in a “low risk” level and that the index follows an offensive approach by selling high strikes call Options. At the opposite, a Risk Regime of 4 indicates that the market is in a “high risk” level and that the index follows an offensive approach by selling low strikes call Options.