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Risk Premium Strategy

  • Asset Class Alternatives

Overview

The GMO Risk Premium Strategy seeks to generate a total return over the long term commensurate with that of global equity markets primarily by writing put options on U.S. and non-U.S. stock indices. 
GMO’s Global Equity team believes that put selling enables investors to generate equity-like returns in a manner that is relatively insensitive to equity market valuations and also that allocating across global markets increases the opportunity for adding value. Put sellers are compensated by collecting what amounts to an insurance premium. In contrast, equity owners are compensated by the earnings yield of the market. Since both activities take equity risk, utilizing both put selling and owning equities can achieve diversification via an increased opportunity set. Furthermore, the relative attractiveness of the approaches varies – selling puts is an attractive proposition when insurance premiums are high, while owning equities is attractive when earnings yields are high, and these do not have to be coincident. 
The team believes the use of the CBOE S&P 500 PutWrite Index is appropriate for measuring the Strategy’s ability to generate returns by gaining exposure to the global variance risk premium; however, we also consider performance against the MSCI World Index over long time horizons to evaluate the Strategy’s ability to harvest the global equity risk premium.

Facts

Performance

Management

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Simon Harris

Head of Global Equity (interim)

Mr. Harris is the interim head of GMO’s Global Equity team. In his decades at GMO, Simon has had extensive portfolio management, quantitative research, and team leadership experience including as the head of the UK Equity team prior to its merger with Global Equity. Previously, he also served as co-CEO of GMO UK Ltd. Prior to joining GMO in 1989, he earned his BSc in Mathematics from The City University (London). Mr. Harris is a Fellow of The Chartered Institute for Securities & Investment.

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Van Le

Mr. Le is a research analyst for GMO’s Global Equity team. Previously at GMO, he was a member of GMO’s Asset Allocation team. Prior to joining GMO in 2015, he worked at JP Morgan most recently as a Sales and Trading Associate for Global Asset Allocation Investments and prior to that as a FICC Options Sales and Trading Associate. Mr. Le earned his MS and undergraduate degree in Econometrics and Mathematical Economics from the London School of Economics and Political Science, his Master’s in Mathematics from Cambridge University, and his Master of Finance from Princeton University.

Documents

Literature

Fact Sheet
Product Primer
GIPS Compliant Presentation
GIPS Composite Descriptions
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Downloads

Performance
Portfolio Composition
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Commentary & Attribution

Commentary - Quarterly
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Risks

Risks associated with investing in the Strategy may include Market Risk - Equities, Illiquidity Risk, Derivatives and Short Sales Risk, Management and Operational Risk, and Counterparty Risk.