The market malaise is causing angst among the many fund managers who are rewarded for beating the S&P 500. And as stocks remain range-bound, it's growing tougher for them to prove their worth without adding extra risk to their portfolios.

But there is one set of mutual fund skippers cheering the market's shiftlessness: those managing covered-call funds. Two of the four major covered-call funds are beating the S&P 500, with the category giant ( GATEX) Gateway Fund up 2.35% year to date vs. 1.3% for the S&P. And the managers of the remaining two funds fully expect to beat the benchmark by year's end.

"We don't generally advocate investors buying funds based on short-term trends, but covered-call funds generally do well when stocks are standing relatively still," says David Kathman, analyst at fund-tracker Morningstar. "That's because investors can simply pocket the income if the call does not get exercised and the stocks maintain their value."

Covered-call writing is a popular though somewhat complicated options strategy in which you sell a call option for a premium against shares that you already own. The buyer of the call option keeps the gain if the stock rises above a certain level (called the strike price) by the time the option contract expires.

If the stock price exceeds the strike price at the end of the contract, then the stock is sold. If, however, the stock fails to reach the strike price by the end of the life of the contract, then, as Kathman points out, the investor keeps both the premium and the stock. It's a win-win situation, provided the stocks continue to flatline.

Gateway's Way

The oldest and by far the largest covered-call fund is the Gateway Fund. The $1.78 billion fund was founded in 1988 by Walter Sall and is -- as one competitor calls it -- "the 1,000-pound gorilla in the category."

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