UBS has launched the Return Optimization Index, a new equity index that replicates a US large cap equity trading strategy designed to provide a benchmark for some call-spread strategies.

This new index combines total-return exposure to the S&P 500 Index with a hypothetical call-spread strategy on the S&P 500 Index. The Index targets 3x exposure to positive S&P 500 returns over semi-annual periods, up to a maximum gain that is reset each such period, with full, unleveraged exposure to any negative S&P 500 returns during such periods.

US investors increasingly invest in call-spread strategies on the S&P 500, usually through structured notes. At maturity, these notes provide investors with two to three times exposure to the appreciation of the S&P 500, up to a cap, while maintaining one times exposure to the S&P 500 downside. Maturities typically range from one to two years.

While these investments have often met with success, there has been no benchmark for measuring the success of this type of strategy over time. The UBS Return Optimization Index is a new benchmark for this type of S&P 500 call-spread strategy that should provide significant time and cost benefits to investors. It is aimed at both high net worth and institutional clients as a potentially attractive alternative to investing in passive ETFs and index funds and also mutual fund and closed-end fund strategies.