April 2016 marked the first month Morningstar began covering option writing funds as their own category. These funds generate income primarily by selling calls and/or puts, which are option contracts alternatively giving buyers the right to buy or sell a particular underlying security. For the month, the category returned an average of +0.25% vs 0.39% for the S&P 500 Index with 9 of the 34 individual funds outpacing the index.
Best Performers in April
The three best-performing option writing funds in April were:
A total of five option-writing mutual funds outperformed the CBOE S&P 500 Buywrite Index, which posted a 0.63% gain in April: In addition to the three funds listed above, TCW/Gargoyle Hedged Value Fund (MUTF:TFHIX) and the Gateway Equity Call Premium Fund (MUTF:GCPAX) rose by 1.16% and 0.69%, respectively, for the month.
MDEIX was the new category’s top-performer in April, returning +1.78%. The fund, which debuted in June 2013, had positive returns for the first four months of 2016, at +0.64%; but negative returns for the year ending April 30, at -4.17%. For the year, the fund had alpha of -5.15%, even if it was less volatile than the average fund, with a one-year standard deviation of 8.93%, compared to the category average of 9.12%.
NOVIX was the second-best performing option writing fund in April, with gains of 1.61%. Its returns for the first four months of 2016 and the year ending April 30 were both negative, though, at -2.79% and -10.16%, respectively. The fund, which launched in September 2012, had annualized three-year returns of -1.58%, despite its three-year annualized alpha of +0.24%.
MENAX rounded out the top three for April, returning +1.24%. Of the top five performers, MENAX had the best four-month returns of +2.95%, and it also outperformed its other top-three peers for the year ending April 30, returning -0.74%.
Among the top five, only GCPAX, which ranked fifth for the month, had positive returns for the year ending April 30, at +0.52%. The category average for the 12-month period was -2.02%, while the CBOE benchmark index posted a gain of 1.90% over the same time.
Worst Performers in April
The three worst-performing option writing funds in April were:
Of the 34 option writing funds under question, only six posted negative returns in April. In addition to the three listed above, the other losers were the Bridgeway Managed Volatility Fund (MUTF:BRBPX), the Eaton Vance Hedged Stock Fund (MUTF:EROAX), and the James Alpha Managed Risk Emerging Markets Equity Portfolio (MUTF:JEAMX), which posted respective 30-day losses of 0.42%, 0.24%, and 0.22%.
SCNAX, however, was the month’s worst-performing option writing fund, and the only one to post a loss as great as 1%. It returned -1.13% in April, -2.92% for the first four months of 2016, and a category-worst -13.74% for the year ending April 30, 2016. The fund, which debuted in August 2008, had three-year annualized returns of -3.24%, and a three-year Sharpe ratio (a measure of risk-adjusted return) of -0.50. These last two figures compare with category averages of +2.79% and +0.51, respectively.
AMBEX was the second-worst performer of the month, returning -0.66%. Its four-month and one-year returns through April 30 stood at +4.19% and -4.59%, respectively. The fund was able to boast of positive three-year annualized returns of +2.11%, but these still lagged the category average.
And finally, LEBOX returned -0.56% in April, ranking third-worst among its category. Like AMBEX, it had positive returns for the first four months of 2016 (+0.50%), but negative returns for the year ending April 30 (-3.85%). Unlike AMBEX, LEBOX also had negative three-year annualized returns, at -0.83%.
Past performance does not necessarily predict future results.
Jason Seagraves contributed to this article.