Ibbotson Announces Study on ``Buy-Write'' Investment Strategy; Covered-Call Investing Can Enhance Risk/Return Tradeoff of a Portfolio

CHICAGO--(BUSINESS WIRE)--Sept. 9, 2004--Ibbotson Associates, a leading provider of asset allocation knowledge and tools, today announced the results of its case study on the "covered-call" investment strategy represented by the CBOE S&P 500 BuyWrite Index (BXM). The study was three-fold: 1) assess risk-adjusted performance of the BXM; 2) evaluate the role of this covered-call strategy in a portfolio; and 3) establish if an investor can implement the strategy.

Ibbotson researchers found that the BXM has had the best risk-adjusted performance of the major domestic and international equity-based indexes over the last 16 years, and that the index enhances the risk-return tradeoff when added to a portfolio. Ibbotson researchers also found that the returns of the Rampart BXM (an investment vehicle that seeks to replicate the index) did closely match those of the CBOE BXM. This is significant because it demonstrates that an investor can implement this covered-call strategy.

“This can be a valuable strategy for reducing overall portfolio risk.”

"A covered-call strategy is when an investor buys a stock, or basket of stocks, and writes (or sells) call options that cover the stock position. A key benefit of this strategy is that downside moves are cushioned by the option premium received from the sale of the options," explained Dr. Peng Chen, chief investment officer at Ibbotson Associates. "This can be a valuable strategy for reducing overall portfolio risk."

The compound annual return of the BXM over its 16-year history was 12.4%--slightly higher than the 12.2% achieved by the S&P 500 and with a third less risk. And the risk-adjusted return for the BXM buy-write strategy was 38% higher than that of the S&P 500. Based on this historical data, when a 15% allocation of the BXM index was added to a moderate portfolio, volatility was reduced by almost a full percentage point with almost no sacrifice of return.

About Ibbotson Associates

Ibbotson Associates, founded by Professor Roger Ibbotson in 1977, is a leading authority on asset allocation, providing products and services to help investment professionals obtain, manage and retain assets. The company's business lines include investment consulting and research; planning and analysis software; investment advice; educational and marketing services and a widely used line of NASD-reviewed presentation materials. With offices in Chicago, New York and Tokyo, Ibbotson Associates markets its integrated product line to institutional money managers, insurance companies, plan sponsors and consultants, financial planners, brokers, mutual fund firms, hedge funds, banks and small money managers.