A.J. D'Asaro: The two funds we'll be comparing today are the Gateway Fund (GATEX) and the Schooner Fund (SCNAX). Both of these funds are option collar funds. But they have some key differences investors should be aware of.
Option collar strategies consist of two parts. The first is selling a call, which exchanges the stock market's upside for a fixed payment upfront. And the second part is buying a protective put, which puts a floor if the stock market should fall significantly.
These funds are appropriate for investors who wish to participate in the stock market but want to do so with less volatility. The key difference between these two funds is the beta that they maintain over the long term. Schooner maintains a beta of closer to 0.5 while Gateway maintains a beta of about 0.35 over the long term. This results in the Schooner Fund [being more volatile] than Gateway, although it doesn't affect risk-adjusted returns.
The other key difference is that Schooner Fund is very tactical with its collar--which, while it can lead to outperformance, takes more management skill and could be riskier. Both of these funds are recommended by Morningstar analysts. However, Gateway possesses a 35-year track record of success as well as lower fees, which make it a more compelling pick in this category.