Back in 1977, Walter Sall, a pioneer in the use of options in investment strategies, founded what could be called the “grandfather” of hybrid investment strategies in a mutual fund format. His goal for the Cincinnati-based Gateway Fund was to give the average investor access to an options-based investment strategy designed to make market downturns less painful while providing some upside in bull markets.

Michael Buckius, who joined Gateway Investment Advisers in 1999, said few investors were thinking about downside protection at that time. Tech stocks were continuing their upward trajectory.

“People were making 7% to 10% a month in a raging bull market,” Buckius recalls, “so achieving those returns over the course of a year with less risk was not mainstream thinking.”

“We were a niche back when I started at the firm, and we’re a niche now,” says the 48-year-old Buckius, who is now Gateway’s chief investment officer and the senior portfolio manager for Gateway Fund.

But that niche is growing, he says, as market volatility ticks up this year and alternative investment strategies become more mainstream.In his previous life, Buckius had been an options trader at a regional brokerage house. He joined Gateway because he believed in the merits of safety nets, even when the stock market is roaring ahead.

Nowadays, he says, investors are paying more attention to risk than they did back when he started and looking for different tools to control it. While the traditional route for dampening portfolio volatility has been moving some assets from stocks to more predictable bonds, the rising interest rate environment makes doing so a less attractive option than it used to be. With that in mind, he says, some investors use the Gateway fund as a fixed-income alternative with a low correlation to both the stock and bond markets.

Others view it as a core equity strategy that aims to minimize downside risk, or as a component of an alternative investment program.

Bear Market Star

Regardless of where the fund fits into a portfolio, history shows that the Gateway Fund truly shines during bear market slides. In the three years from 2000 to 2002, when the S&P 500 plummeted nearly 40%, the fund’s return was almost flat. In 2008, when the index lost 37% of its value, the fund was down just 14%.

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