With election season fast approaching, investors would be remiss not to consider how potential election volatility may affect their portfolios.
Recent research from Gateway Investment Advisers highlights the potential historic trend of market volatility heading into the U.S. elections. By examining the Cboe Volatility Index (VIX), Gateway’s research notes that volatility levels may significantly increase in October as the U.S. presidential election nears.
Currently, the VIX Futures Curve predicts a spike in volatility in October 2024. This would follow a similar trend that the market underwent in 2020, though 2020 was also undergoing pandemic-related economic woes.
“Regardless of the election outcome, lurking drivers of volatility, or the shape of its futures curve, investors should remain vigilant to the unexpected,” the Gateway research added.
With volatility potentially mounting in the horizon, now may be a good time for investors to bolster their portfolio with funds that can weather the storm. Or better yet, pick a strategy that might actually benefit from the volatility.
Options Income
One such strategy is the Natixis Gateway Quality Income ETF (GQI ). GQI shoots to provide income for investors, along with the potential for capital appreciation.
To do so, the fund invests in a mixed portfolio of high-quality U.S. large—and mid-cap stocks. Gateway’s investment management team seeks companies with good profitability, low leverage, and established performance. By focusing on quality, the GQI’s equities portion enables market participation while defending the portfolio from potential uncertainty.
This equity portfolio is paired with a call options strategy, utilizing listed index options or equity-linked notes. The fund can provide strong cash flow through the implied volatility risk premium through careful use of these options.
GQI also has the added benefit of being an actively managed fund. With an active management team, the fund can better position itself to weather—and potentially profit from—volatility down the line.
As a portfolio addition, GQI can serve as both a means to generate income and mitigate potential risk from volatility. With potential volatility from the U.S. elections fast approaching, now may be the time for investors to curate their portfolios to profit from uncertainty.
Already, GQI is seeing robust fund flows heading into the fall election season. As of August 7th, 2024, GQI has seen over $2.1 million in fund flows over the last month.
For more news, information, and analysis, visit the Portfolio Construction Channel.
