VEGA: August 2020 Portfolio Manager Review

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Portfolio Update

  August 2020 YTD
VEGA NAV 4.82% 2.54%
MSCI AC World Index 6.12% 4.75%
Cboe S&P 500 Buy Write Index (BXM) 2.59% -9.56%
Bloomberg Barclays U.S. Aggregate Bond Index (AGG) -0.81% 6.47%

As of 8.31.2020.

In August the market continued the upward momentum it began in mid-April, making new highs. The S&P 500 Index closing out the month with a return of 7.19%. Fixed Income had lackluster returns with the Aggregate Bond Index (AGG) posting a -0.81%.


The top performers in August were U.S. Large Cap equity based positions with Technology (XLK) leading with a return of 11.88%. Other sector specific exposures did well with Communication Services (XLC), Consumer Staples (XLP), and Healthcare (XLV) with returns of 8.83%, 4.59% and 2.59%.


There was only negatively contributing position in August was Aggregate Bond Index (AGG).

Top Holdings

Ticker Security Description Portfolio Weight %

As of 8.31.2020.


Covered Calls
August strike for the Covered Calls was nearly spot on. Back in July of 2020, VEGA sold SPY Covered Calls with a strike of 339. SPY closed at $339.48, just $0.48 above the strike set in July. However, because VEGA is run in a tax efficient manner, the Covered Calls were closed for $0.52 cents on the Friday of expiration to avoid assignment. When Covered Calls are In-The-Money, especially at expiration, the underlying will be sold out of the portfolio, which would have tax consequences for the strategy. Overall VEGA accomplished the goal it set out to achieve in August, which is participate in Price Appreciation up to the strike and gain additional return from the selling of Covered Calls. The return stream broken down on SPY for the month of August looks like this:

Strike – Starting Price = Price Appreciation
339 – 324.32 = $14.68

Option Sell Price – Option Buy Price = Option Premium
($1.53 – $0.52) * 75% = $0.76

Price Appreciation + Option Premium = Total Dollar Return for July to August Expiration
$14.68 + $0.76 = $15.44

This is a text book case of how Covered Calls are intended to work. It should be noted that VEGA gained an additional only an additional $0.76/share of SPY instead of $1.01, this is because VEGA only sold Covered Calls on 75% of the current holding of SPY shares.

Protective Puts
They’re baaaaaaack! Welcome back to Protective Puts. Protective Puts exited the portfolio March 2020 and with the persistently high Volatility Index (VIX) they have been priced out of the portfolio until now. During the first week in August Protective Puts were integrated back into the portfolio. The market was trending strongly upward and approaching the previous high. It may seem counter intuitive to buy Protective Puts were the market is going up, but that is exactly when you should get them. December 2020 250 Protective Puts were purchased for 10% notional coverage of the portfolio. The idea would be that VEGA may have another opportunity to add move Protective Puts at a different strike or month in the near future, which would allow us to extend our protective should volatility return. Hopefully, by the end of September or early October another strike will be integrated into the portfolio, bringing the notional coverage up to 20%.

Volatility-Based Reinvestment
Volatility-Based Reinvestment (VBR) is a systematic way to deploying cash accumulated from the selling of Covered Calls or Strategic Cash back into the market when the market is trending lower. Having deployed 6 rounds of VBR in early 2020 the VIX would need to be significantly above its 200-day moving average before ash cash be reinvested. The 200-day trended upward to 27 at the start of August. Although the daily VIX has trended lower between March and August, the 200-day average continues to rise. This is because the large spike in early 2020 is now a major component of the average and the previously low VIX data points are dropping out of the average. VEGA would still need a VIX of at least 60 before deploying any additional cash.

Tactical Shifts
VEGA continues to look for opportunities for Tactical Shifts. VEGA is currently satisfied with its current exposure to the global. While this means no recent Tactical Shifts were made during August and there are no intended ones for the future, VEGA will continue to seize an opportunities the present themselves in the current market environment.

When the new calls were sold against the S&P 500 in the beginning of August the beta of the portfolio was at .64. This is just slightly above our historical target beta of .60. The Beta of the portfolio may have in fact been higher during the month of August and that was intentional. The market was in the process of making new highs around August expiration, instead of immediately selling new Covered Calls and capping our upside price appreciation, VEGA waited until the Thursday following expiration, which allowed for VEGA to set the ceiling on the upside participation over 2% higher than if calls had been sold immediately after expiration.

Fixed Income
Fixed Income continues to maintain a relatively low duration of 2.31, which is up slightly due to the changes in the underlying Fixed Income ETFs. VEGA continues to think that low duration is prudent give the market environment. Should more volatility return in late 2020 or early 2021, principle values of high duration Fixed Income positions will be impacted more than their lower duration counterparts.

Market Review

During the month of August, as countries throughout the world worked to find a balance between virus mitigation and economic recovery, global and domestic stock markets continued their ascent. Globally, the MSCI ACWI posted a gain of 6.16% on a total return basis, bringing the index up 5.12% YTD.  Benefiting from much of the same tailwinds, the MSCI Emerging Markets index notched a more modest return of 2.24% for the month, enough to push the index into the green YTD, up 0.68%. Domestically, like in July, all major indexes extended their now five-month period of gains. The S&P 500 experienced its best August since 1986, ending the month up 7.19%, with YTD gains of 9.74%.  Over the 5-month period ended August 31st, the S&P has surged 35% over that period, its largest 5-month percentage gain since 1938.  The Russell 2000 notched August gains of 5.63%, bringing the index closer towards positive territory YTD (-5.53% YTD through August 31st). Meanwhile, the old-economy dominant Dow Jones Industrial Average benefited from recent changes to its composition as it ended the month up 7.92%, though YTD the index is up only 1.30%.

Source: YCharts

On the fixed income side of the market, U.S. Treasury yields rose on bullish market momentum as well as the return of hopeful sentiment as COVID trends again began to improve domestically. Focusing on the Treasury Curve’s front-end, the 2-year Treasury began August at the low point of 0.11%, climbing as high as 0.16% before ending the month up modestly to 0.14%. The 10-year Treasury opened the month yielding 0.56%, rising to 0.74% before ending the month down only slightly from its peak at 0.72%. We expect yields to remain largely range bound going forward as the U.S. Federal Reserve confirmed it will leave borrowing costs very low for the foreseeable future at its August Jackson Hole Summit meeting. At this event, the Fed formally adopted an average inflation target, acknowledging the change “reflects [The Fed’s] view that a robust job market can be sustained without causing an outbreak of inflation” (Source: Federal Reserve).

In fixed income markets, as bullish equity tailwinds caused a sell-off of safe-haven assets in preference of higher yielding assets, most major bond indices ended August in the red. The Bloomberg Barclays U.S. Aggregate and Global Aggregate ended the month down 0.81% and 0.15%, bringing each index to 6.85% and 6.11% on the year, respectively.  In contrast to the aggregate fixed income indices, the U.S. High Yield Master II returned 0.98% in August, bringing it to 0.75% YTD. However, the S&P 500 Investment Grade Corporate bond index fell 1.71% in August, bringing the index to YTD gains of 7.44%.

Source: YCharts

The August reprieve in COVID transmissions is one reason for the bullish trends in fixed income and equity markets. As the U.S. grew—and continues to grow—more experienced and capable in its fight against COVID, August saw the pace of new infections slow modestly according to data from Johns Hopkins University. Globally, total infections passed 25 million in the month as the U.S. reported domestic cases of roughly 6 million.  In all, the U.S. added around 1.38 million cases during August, compared with the 1.87 million cases that were reported in July.

Declining transmission trends and bullish sentiment in the market are causing Wall Street analysts to be as optimistic as feasible in the face of a global pandemic. As reported by Lipper, the S&P 500 is expected to experience an earnings decline of 23% for the third quarter of the S&P 500.  While none of the 11 S&P 500 sectors are expected to post any earnings growth relative to the third quarter of 2019, there are certain subsectors which stand to gain from COVID-related tailwinds. Information technology, which is only expected to post an earnings decline of 1.8%, has 5 of its 13 subsectors expected to increase 3Q earnings relative to last year.  Healthcare, which has an expected earnings decline of 2.8%, has 6 of its 10 subsectors anticipating earnings growth over the same period.

Source: Bloomberg

U.S. Economy:
As expected, the distance between Wall Street and Main Street as shown though economic indicators increased during August. Starting first on a confidence level, the outlook appears to be mixed depending on who the surveys asked. The Conference Board Consumer Confidence Index decreased again to 84.8, with the Present Situation index falling sharply from 95.9 to 84.2. Of interest, however, is that the portion of the survey reserved for leaders of companies saw an increase during the month, as the CEO Confidence Survey notched a 5% gain.

On the consumer front, as unemployment saw several weeks of increases throughout the month, this continuing fall of consumer confidence is of no surprise. As recreational and retail shutdowns go into their 7th month with no signs of a reversal, the crickets from Capitol Hill regarding additional stimulus measures ring loudly in the ears of the roughly 30 million individuals receiving unemployment benefits. Considering these benefits now amount to several weeks of significantly lower payouts to the unemployed, more adverse economic impacts are anticipated in the coming months.

During August, the domestic employment situation remained mixed.  Though there were several weeks of increases in initial unemployment claims, they were met by an equal amount of weeks of decreasing initial claims, according to the Bureau of Labor Statistics (BLS).  In total, as unemployment filings teetered between expansion and retraction territory, job postings allude to a brighter road ahead.  According to data from LinkUp, a job listings dataset, through mid-August over one million new positions were published online.  This figure is in line with the numbers from one year ago and highlights the encouraging rebound in job offerings from June through August.

Source: LinkUp

Inflation, back in the news due to the Fed’s formal adoption of an average inflationary goal, is expected to increase in the future as shown by several leading indicators. The 5 Year-5 Year Forward rate, a measurement of the average expected inflation over the 5-year period that begins 5 years from today, rose to a six-month high of 2.07% before ending the month slightly below 2%, while the 10-year breakeven rate rose above 1.70% for the first time since January. This rate serves as an indication of the fixed income market’s inflation expectations over the next 10-year horizon.

International Update:
As time progresses we continue to learn more about the extensive impact the pandemic has had on global economies.  The CPB Netherlands Bureau for Economic Policy Analysis estimated that global flows for goods across borders were 12.5% lower in the three months through June compared to the first quarter of the year, marking the steepest decline since records began in 2000.  The Eurozone saw its exports fall by 19.2% respectively for the second quarter, while China experienced a 2.4% increase following a 7.7% decline in the first quarter of 2020.  Breaking these trade flows into their monthly components paints a picture of a responsive rebound, as flows rose by 7.6% globally in June due to partial global reopenings.  Looking forward, the World Trade Organization (WTO) has estimated that trade volumes are likely to fall by 13% around the world this year compared with 2019.

The UK released their initial analysis of the country’s GDP from the second quarter in August.  The UK Office for National Statistics estimated that GDP fell by a record 20.4% during the quarter, following a 2.2% decline in the first quarter of the year.  On a positive note, however, the monthly data does show a pick-up in economic activity in June as government restrictions on movement were gradually lifted throughout the country.  On a sector basis, there were record quarterly falls in services, production, and construction output as private consumption accounted for more than 70% of the fall in GDP.

Turning to the Eurozone, recent Purchasing Managers Index (PMI) data shows a slowdown in the pace of recovery underway for the economic region. The IHS Markit Eurozone PMI Composite Output Index fell to 51.9 in August, down from 54.9 in July. Breaking this down into its components, the main cause for the decline can be attributed to the sharp decline in the rate of growth for service sector activity.  Although this industry recorded a second successive month of growth, the rate of growth was only marginal compared to that seen in July.  In contrast, manufacturing output rose at the fastest pace since April 2018. On a country level, Germany was the best performing economy in the region, aided by its manufacturing-heavy economy, while Spain and Italy were weighed down by their service-focused economy to record outright declines in business activity.

While the rate of recovery is slowing, optimism regarding the immediate and longer-term future still remains widespread throughout the region. This can be seen in the most recent Economic Sentiment Indicator (ESI) report for August released by the European Commission. In it, the recovery of the indicator continues as it notched a 5.3 point gain for the Euro Area. In total, the ESI has recovered roughly 60% of the combined losses from March and April as the area sustains improvements in industry, retail trade, and services confidence.  In contrast, confidence edged down in construction and remained largely stable amongst consumers. On a country level, the ESI increased most significantly in France, The Netherlands, and Germany while it experienced a significant setback in Spain.

Thank you for your continued trust in Partnervest.

David Young
Partnervest Advisory Services, Chief Investment Officer
AdvisorShares STAR Global Buy-Wrtie ETF (VEGA) Co-Portfolio Manager

Rebecca Valdez
Partnervest Advisory Services, Director of Investments
AdvisorShares STAR Global Buy-Wrtie ETF (VEGA) Co-Portfolio Manager

Information is from sources deemed to be reliable, but accuracy is not guaranteed.

*Performance and pricing data used for VEGA ETF is based on the indicated value of the ETF at the close of the day.


Beta measures the sensitivity of an investment to the movement of its benchmark. A beta higher than 1.0 indicates the investment has been more volatile than the benchmark and a beta of less than 1.0 indicates that the investment has been less volatile than the benchmark.

The Barclays Capital U.S. Intermediate Government Bond Index measures the performance of U.S. Dollar denominated investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.

The Cboe S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index.

The Consumer Sentiment Index is a monthly survey of U.S. consumer confidence levels conducted by the University of Michigan. It is based on telephone surveys that gather information on consumer expectations regarding the overall economy.

covered call option involves holding a long position in a particular asset, in this case shares of an ETP, and writing a call option on that same asset with the goal of realizing additional income from the option premium.

Delta represents the rate of change between an option’s price and a $1 change in the underlying asset’s price. In other words, the price sensitivity of an option relative to the underlying.

Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates.

The MSCI ACWI World Index is is an unmanaged free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.

An option is a privilege, sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed upon price within a certain period or on a specific date.

Exercising an option means to put into effect the right specified in the option contract.

An option premium is income received by an investor who sells or “writes” an option contract to another party.

A call option is considered Out Of The Money when the call option’s strike price is higher than the prevailing market price of the underlying stock. A put option is considered Out Of The Money when the put option’s strike price is lower than the prevailing market price of the underlying stock.

protective put is an option strategy which entails buying shares of a security and, at the same time, enough put options to cover those shares. This can act as a hedge on the invested security, since matching puts with shares of the stock can limit the downside (due to the nature of puts). 

The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. A reading above 50 indicates expansion in the sector; below 50 indicates contraction.

put option is a contract that gives the owner of the option the right to sell a specified amount of the asset underlying the option at a specified price within a specified time.

A short position is the sale of a borrowed investment with the expectation that it will decline in value.

Theta is a measure of the rate of decline in the value of an option due to the passage of time.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Implied Volatility is the estimated volatility of a security’s price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.

The Volatility Index (VIX) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant
to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. The VIX is a contrarian sentiment indicator that helps to determine when there is too much optimism or fear in the market.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Other Fund risks included: allocation risk; derivative risk; early closing risk; Exchange Traded Note risk; liquidity risk, market risk; trading risk; commodity risk; concentration risk; counterparty risk; credit risk; emerging markets and foreign securities risk; foreign currency risk; large-, mid- and small- cap stock risk. Please see the prospectus for detailed information regarding risk. The Fund is also subject to options risk. Writing and purchasing call and put options are specialized activities and entail greater than ordinary investment risk. The value of the Fund’s positions in options fluctuates in response to the changes in value of the underlying security. The Fund also risks losing all or part of the cash paid for purchasing call and put options. The Fund may not be suitable for all investors.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times. 

Holdings and allocations are subject to risks and change.

The views in this commentary are those of the portfolio manager and many not reflect his views on the date this material is distributed or any time thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.