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Originally Posted by Olav23
From the BXM microsite: http://www.cboe.com/micro/bxm/introduction.aspx
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(The compound annual return of the BXM was 11.77% compared to 11.67% for the S&P 500, and BXM returns were generated with a standard deviation of 9.29%, two-thirds of the 13.89% volatility of the S&P 500.)
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You could definitely implement this yourself, and could probably do it cheaper. |
From that report:
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Like many passive indexes, the BXM Index does not take into account significant factors such as transaction costs and taxes.
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So, a 0.1% higher return will be offset by a 0.75% fee. Just holding the S&P ETF is a very low fee (~0.18% plus a buy/sell commission of a $XX.00. Doing this yourself would incur monthly transaction costs for the calls and any sell/repurchase, but those could still be fairly low on a sizable account with a discount broker. Taxes are a whole 'nother matter, but I would assume the fund would need to account for much of the gains as short term capital gains.
Someone else could probably chime in and tell us if a strategy of a blend of bonds and S&P would give similar results? Offhand, it seems that you would need a lot of bonds to drop the standard dev that much lower, and in turn, that would lower your total return?
I have to admit, that reduction in volatility is impressive, and little/none is lost in total return. Pretty neat 'trick'.!
OTOH, what exactly is lower variation worth? Certainly worth a lot if you need to cash in during a down period. But, if you have sufficient short term money to cover that, it almost seems like just a 'feel good' thing? For example, if you told me that 20 years from now, this 'bucket' in my account would be worth $x, would I really care that it wavered on the way there? Maybe re-balancing on those normal market dips/peaks would actually provide superior returns?
-ERD50
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