No one would ever accuse Gateway Investment Advisers of swinging for the fences.

The Cincinnati-based investment firm with $10.38 billion in assets under management shuns a slugging mentality. Instead, it takes the approach of a solid, no-star baseball team that wins games “with singles and doubles while trying to avoid strikeouts,” says Paul Stewart, CIO and co-manager of the firm’s equities fund.

Gateway calls its investment style “hedged equity.” It builds a diversified portfolio of stocks and hedges it in two ways: either by selling index call options (Standard & Poor’s 500 Index options) written at or near the level of the market or by buying outof- the-money S&P index put options. When the S&P 500 roars, Gateway’s $6.7 billion equity fund underperforms, achieving steady but nonetheless “sedate” returns, Stewart says. When the market swoons the fund is protected by the put options. “Long term,” he notes, “we’ve captured 70 percent of S&P returns with 40 percent of the risk.” Short term, though, the fund’s formula lags the market: through November, Gateway’s flagship fund was up only 5.92 percent, versus a 12.6 percent gain for the S&P 500.

One key to making Gateway’s strategy work: Its trading desk casts a cold eye on expenses. “It’s incumbent on us not to have high costs,” Stewart says. “That would be painful.”

The firm’s vigilance earns it a high ranking in Institutional Investor’s most recent Transaction Costs Analysis survey, conducted for the publication by Elkins/McSherry, a division of Boston-based State Street Corp. The survey measures a firm’s trading costs against the average performance of some 1,400 investment managers, relative to the volume-weighted average price. Gateway ranks No. 5 among investment managers in the U.S., with a cost of 20.04 basis points below the Elkins/ McSherry universe average in the 12 months ended June 30. Only four investment firms deliver stronger performance. AJO Partners comes in first place, with an average cost of 33.87 basis points below the universe average, followed by BlackRock (–20.33 basis points), Brandes Investment Partners (–20.13) and GMO (–20.11).

On a global basis, First Eagle Investment Management leads the pack, besting the universe average by 22.30 basis points, followed by Pyramis Global Advisors (–21.07 basis points), Mondrian Investment Partners (–20.25), T. Rowe Price (–16.62) and Thornburg Investment Management (–16.60).