Neuberger Berman Addresses Volatility with PutWrite Fund

Given the increase in market volatility since the start of 2018, Neuberger Berman is reminding advisers and 401(k) investors nearing retirement about the turbulent effect of equity markets and how their U.S. Equity Index PutWrite Strategy Fund can offer solutions.

According to the firm, the fund provides those approaching retirement with returns similar to equities, with reduced volatility and the added benefit of an income cushion. The fund is meant to be more conservative and diversified than other “put write” strategies because it does not use any leverage or single-company options, making it ideal for use in near-dated target-date funds (TDFs) and other managed asset allocation vehicles, such as white label funds or target-risk funds.

The fund may benefit participants enrolled in defined contribution (DC) plans too, says Doug Kramer, managing director at Neuberger Berman.

“Instead of using just stocks and bonds in DC plans, you can make an allocation to a PutWrite strategy, and have a similar return to an equity index, but the risk adjusted returns improve,” he says. For those nearing retirement in 10 to 15 years, who are most wary of experiencing a large draw-down on their savings, Kramer says the fund could provide some tranquility, by diminishing risk and protecting returns.  “When you’re five to 10 years before retirement, taking some money out of traditional equities and putting that capital into PutWrite makes sense, because you’re still participating in the upside of equities, but with fewer years to recuperate possible losses, you’re seeking the lower draw-downs historically associated with a PutWrite.”

Put writes work by having put writers take in option premiums from investors that are willing to pay to mitigate short-term losses. The options are written against major indexes, like the S&P 500 and Russell 2000. Investors generally seek out the protection offered by puts during extreme market volatility, and are willing to pay a potentially hefty premium for that insurance, which is typically 1.5% each month and 18% annualized.

PanAgora Adds ESG Alpha Factors

PanAgora Asset Management announced that it has launched a new suite of proprietary environmental, social, and governance (ESG) alpha factors that have been enhanced through “materiality” technology and an integrated portfolio construction framework designed for today’s evolving ESG investment landscape.

In keeping with the firm’s objectives of maximizing alpha generation while minimizing downside risk, PanAgora’s new ESG alpha factors are said to identify and pursue companies with dominant competitive advantages within their respective industries; the factors also consider other inputs, including shareholder, employee and customer composition, and relevant environmental matters.

“Still an evolving field, there hasn’t been a well-designed process to best construct portfolios that optimally combine profit-maximizing characteristics with ESG characteristics and client-specific requirements,” says George Mussalli, chief investment officer, Equities at PanAgora. “We have developed what we believe is a next generation quantitative process for constructing ESG portfolios that utilize a broad array of innovative factors that are flexible, relevant and dynamically optimal.”

Hartford Funds Increases ETF Roster

Hartford Funds has launched the Hartford Schroders Tax-Aware Bond Exchange-Traded Fund (HTAB ETF), expanding its roster to five actively managed fixed-income ETFs and seven multifactor ETFs. Sub-advised by Schroder Investment Management North America Inc. (SIMNA), the Hartford Schroders Tax-Aware Bond ETF seeks total return on an after-tax basis by investing in a diversified portfolio of taxable and tax-exempt fixed-income debt instruments of varying maturities.

“Investors are seeking high quality fixed-income solutions providing compelling after-tax returns at a competitive price,” says Vernon Meyer, chief investment officer of Hartford Funds. “Further expanding our fixed-income offerings allows us to match our strong mutual fund track record in tax-aware and municipal bond strategies with a similar investment approach in our growing ETF business.”

HTAB seeks to add value by working to capitalize on imbalances in the relationships among sectors and individual bonds, spanning both tax-exempt municipals and U.S. dollar-denominated taxable bonds. The strategy manages interest-rate risk by shifting between sectors, assessing market conditions and adjusting duration. HTAB’s current expense ratio is 0.39%.