At the 30th Annual CBOE Risk Management Conference in Bonita Springs Florida, John Marshall of Goldman Sachs delivered a presentation on “Mutual Fund Use of Options: Public Holdings and Trends.” John manages the Goldman’s Derivatives Research team in New York.
John said that in recent years, Goldman Sachs Global Investment Research did extensive, time-consuming research of SEC filings by mutual funds and closed-end funds (herein referred to as “funds”).
Here are some of the key findings that were presented:
- FUND FAMILIES. Five of the top 15 fund families now have funds that use options.
- FUNDS. At least 196 funds use options, and these 196 funds had more than $480 billion in assets under management at the end of 2013.
- STRATEGIES. The % of positions held by mutual funds in each options strategy – 64% in short calls, 22% in short puts, 8% in long puts, and 6% in long calls.
- MATURITIES. About 47% of short-options positions had a maturity of 30 days or less, while about 40% of long-options positions had a maturity of 30 days or less.
- TYPES OF OPTIONS. Over the past two years, fund usage of both single-stock options and index options has grown, while fund usage of ETF options has decreased.
- GROWTH IN ASSETS. Over the past 5 years, assets under management for the option-using funds have grown 160%, versus 110% growth for their peer funds that do not use options.
- STRONGER PERFORMANCE. Over the 5-year period ending March 4, 2014, the funds that used options had higher returns, lower volatility, and higher risk-adjusted returns than their peer funds that do not use options. (These findings were pretty remarkable in that most of the options-based funds sell options, and the stock market experienced a strong upside move over the past five years).
I found the presentation by Mr. Marshall to be quite informative and intriguing. Of course, one should read the applicable prospectus to learn about risks and costs before investing in any fund.