CBOE Holdings (CBOE) said Monday it had made a majority equity investment in Vest, an investment advisory firm that already provides options-centric products through a Web-based platform designed for advisors.
John Deters, CBOE’s chief strategy officer and head of corporate initiatives, said in an interview Friday that Vest’s products “really resonate in markets” like we’ve seen since the beginning of 2016, and Vest’s user-friendly tools “help advisors select the appropriate investments for clients.”
CBOE’s own strategies will be available through the platform built by Vest, which becomes a majority-owned subsidiary of CBOE. Karan Sood will continue to lead Vest as CEO, while President Bill Kung will step down from his current role to focus on Vest’s technology solutions business.
According to a statement from CBOE, the Vest platform allows advisors to use managed accounts with the desired level of risk for new or existing stock/ETF positions, then structures a “Protective Strategy,” using a portfolio of exchange-traded options to match the investor’s personalized investment objectives and desired protection as closely as possible. Sood said in an interview Friday that in addition to the managed accounts, it will launch unit investment trusts (UITs), mutual funds and ETFs through a partnership with an index provider. “We are going to partner with an index provider,” he said, to develop an ETF “with exposure to the S&P 500 with a 10% downside protection and a cap.”
Deters said Vest’s tools allow advisors to “sell the benefits of options” to clients “rather than selling options.” In addition, it also provides advisors “with a sense of the all-in costs” of using options to protect client portfolios. Deters said “it’s not widely understood that the cost of protection in liquid options is extremely reasonable,” and in some instances “you can purchase your protection at a net zero cost.”
There are, of course, other methods of protecting client portfolios during volatile market periods, but Deters said “diversifying into cash or fixed income comes with its own cost — low yield and potential downside pressures” should interest rates continue to rise, along with correlation risk.
There are multiple risks right now, such as slowing growth in China and “the ultimate impact of the Fed tightening, neither of which has happened for 10 years,” so Deters argues that “the protections of options allows clients to sleep at night” because with the options strategies “we’re taking the downside risk almost completely off the table.”