Sponsors Scout Buying Options within SMAs



A little-used and relatively obscure investing strategy – buying options within a separately managed account – has made a bit of a stir in recent months, with a spike in product development talks between asset managers and platform sponsors, mostly for the strategy’s potential to address advisor and client concerns about market volatility.

The technique of using options in SMAs has been around for a while, primarily as a specialty aimed at generating returns through option-writing expertise, or to help clients with large concentrated positions hedge their portfolios. The new strain of product inquiries, however, is looking at how options might help advisors address a major concern of the last few years: lessening the shock and distress clients feel when the markets shimmy and shake in all directions.

“We’re seeing more demand in the last year or so, maybe even in a shorter timeframe,” says Patty Loepker, director of externally managed SMA and institutional products at Wells Fargo Advisors, who is chairing the Money Management Institute’s conference this week in Chicago. “More advisors are calling and asking for strategies, and we’re seeing more demand for managers that offer it.”Several managers with long histories in the SMA business say they have seen unexpected interest in the concept of late. One executive at a top-20 SMA firm, who spoke on condition of anonymity, says sponsors had approached the outfit seeking a partnership in which the manager would craft a strategy and the sponsor would buy options against the holdings.

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