EnnisKnupp Introduces New Study on Benchmark for Collateralized PutWrite Strategy

PUT Index Had Enhanced Risk-Adjusted Returns Over the Past 22 Years

CHICAGO--()--Ennis Knupp + Associates (EnnisKnupp), one of the largest investment consulting firms in the world, today released a new six-page study on the performance of five benchmark indexes, including the CBOE S&P 500 PutWrite Index (ticker symbol PUTSM), over a period of more than 22 years. The PUT Index is a benchmark index calculated by the Chicago Board Options Exchange (CBOE®) that systematically sells one-month, at-the-money put options on the S&P 500® Index collateralized by a portfolio of Treasury bills. A put option gives the holder the right to sell the underlying security at a specified price for a certain fixed period of time.

Over the past year, many institutional investors have expressed interest in exploring investments that have less volatility and downside risk than the well-known stock indexes. The new study examined the performance of five indexes for the period from July 1986 through October 2008 - the PUT Index, the S&P 500 Index, the MSCI EAFE Index, the Barclays Capital Aggregate Bond Index and 3-Month Treasury Bills. Among the key findings of the study were the following:

  1. Highest Annualized Returns. The PUT Index had annualized returns of 10.32% during the period analyzed, higher than the other four indexes studied. (The annualized returns were 8.77% for the S&P 500, 7.16% for the Barclays Capital Aggregate Bond Index, 6.11% for MSCI EAFE, and 4.09% for 3-Month Treasury Bills.)
  2. Volatility Lower Than Stocks and Higher Than Fixed Income. The PUT Index had an annualized standard deviation of returns of 9.91%, which was 36% less than the 15.39% standard deviation for the S&P 500. (Other annualized standard deviations were 17.39% for MSCI EAFE, 4.05% for the Barclays Capital Aggregate Bond Index, and 0.53% for 3-Month Treasury Bills.)
  3. Relative Performance in Up- and Down-Months. The PUT Index has tended to outperform the S&P 500 in quiet and falling markets, and underperform the S&P 500 in months when stock prices rise sharply. In the months in which the S&P 500 experienced large positive returns, the average monthly returns were 4.14% for the S&P 500 and 2.11% for the PUT Index. In the months in which the S&P 500 experienced large negative returns, the average monthly returns were negative 5.38% for the S&P 500 and negative 2.93% for the PUT Index.
  4. High Gross Monthly Premiums and Sources of Excess Return. On average, selling the at-the-money put option each month earned a premium of 1.65% of the notional value of the index, which averaged 19.8% per year. The income return of 19.8% exceeds the total return of 10.3%, as a portion of premiums are paid to insure losses of the put buyers. The PUT Index had a higher Sharpe Ratio, higher Sortino Ratio, and more negative skewness than the S&P 500 Index. A key source of excess returns for the PUT Index lies in the fact that index options have tended to trade at prices above their fair value, and so some sellers of short-term index options have been able to generate excess risk-adjusted returns. Annual income from the sale of put options is higher from the sale of 1-month options than the sale of longer maturity options.
  5. Investing in the PUT Index. The first licensed fund designed to track the PUT Index was launched in April 2007, and the fund and the PUT Index had a very similar risk-return tradeoff, experiencing a correlation of 0.99 since inception.

More information about the new study, the underlying indexes and risk disclosures may be found at www.ennisknupp.com and www.cboe.com/PUT.

EnnisKnupp is one of the largest investment consulting firms in the world with aggregate assets of more than $815 billion under advisement for over 155 retainer clients, as well as approximately $1 trillion in project-related engagements. They serve a diverse client base that include public, corporate, and jointly-trusteed retirement funds, as well as not-for-profit organizations, foundations, and other endowed institutions. EnnisKnupp has grown to 126 employees, of which 97 are consulting professionals, and as a result the firm has extensively deep bench strength and resources that are devoted to providing world class service to clients. EnnisKnupp's comprehensive advisory services encompass traditional investment consulting combined with complete coverage of all alternatives consulting needs for private equity, real estate, and opportunistic strategies. In addition, they are leading experts in fiduciary services, which includes fiduciary audits and operational reviews, investment program structure and monitoring, board/committee governance, strategic planning and organizational design, and trustee education. EnnisKnupp remains dedicated to maintaining its strict independence from financial service providers, which ensures that the advice clients receive is unconflicted and always in their best interest. EnnisKnupp was compensated by Chicago Board Options Exchange, Incorporated (CBOE) for the preparation of the paper.

The CBOE S&P 500 PutWrite Index is designed to represent a proposed hypothetical PutWrite strategy. Investors attempting to replicate the index should discuss with their brokers and investment advisers possible timing and liquidity issues. Past performance does not guarantee future results. Standard & Poor's®, S&P®, and S&P 500® are registered trademarks of The McGraw-Hill Companies, Inc. and are licensed for use by the CBOE. CBOE's options based on S&P 500 indexes and financial products based on the CBOE S&P 500 PutWrite Index are not sponsored, endorsed, marketed or promoted by Standard & Poor's and Standard & Poor's makes no representations regarding the advisability of investing in such products. CBOE calculates and disseminates the CBOE S&P 500 PutWrite Index and CBOE Volatility Index (VIX). The methodology of the CBOE S&P 500 PutWrite Index and VIX are owned by CBOE and may be covered by one or more patents or pending patent applications. CBOE®, Chicago Board Options Exchange®, CBOE Volatility Index® and VIX® are registered trademarks and PutWrite Index is a servicesmark of CBOE. All other trademarks and servicemarks are the property of their respective owners. This document contains index performance data based on back-testing, i.e., calculations of how the index might have performed prior to launch. Index performance returns do not reflect management fees, transactions costs or expenses.

Contacts

Ennis Knupp + Associates
Ms. Harmony Watling
(312) 715-3369

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Contacts

Ennis Knupp + Associates
Ms. Harmony Watling
(312) 715-3369