VEGA: 1st Quarter 2023 Portfolio Review
|as of 03.31.2023||1Q23||YTD|
|MSCI AC World Index||7.31%||7.31%|
|CBOE S&P 500 BuyWrite Index||7.52%||7.52%|
|Barclays U.S. Aggregate Bond Index||2.96%||2.96%|
In March, equities were mostly up despite a tumultuous month of news surrounding regional banks in the U.S.1 At its most recent meeting, the Federal Reserve (Fed) raised interest rates 25 basis points (bps) but signaled that rate increases are potentially nearing an end. Bonds and growth stocks, two of the most out of favor asset classes since the start of the Fed hiking cycle, had strong performance as investors hedged the possibility of a Fed pivot.
|Ticker||Security Description||Portfolio Weight %|
|SPY||SPDR S&P 500 ETF TRUST||39.89%|
|EFA||ISHARES MSCI EAFE ETF||14.79%|
|IUSB||ISHARES CORE TOTAL BOND ETF||13.88%|
|IWP||ISHARES RUSSELL MID-CAP GROW||8.08%|
|EEM||ISHARES MSCI EMERGING MARKET||6.10%|
|MBB||ISHARES MBS ETF||5.90%|
|GOVT||ISHARES US TREASURY BOND ETF||4.09%|
|TLH||ISHARES 10-20 YEAR TREASURY||1.49%|
|MTUM||ISHARES MSCI USA MOMENTUM FA||1.26%|
|SJNK||SPDR BLOOMBERG SHORT TERM HI||0.93%|
As of 03.31.2023. Cash not included.
Covered Calls: All the monthly calls sold in the first quarter expired worthless and added an annualized return of .92% to the portfolio based upon an annualized value of the portfolio at the time the options were sold. The out of the moneyness at the time the calls were sold was an attractive 5.50% in January, 5.10% in February and 6.10% in March.
Tactical Shifts: Following the collapse of Regional Banks, we increased our allocation into GOVT, MBB, EEM, and EFA and reduced our allocation to SJNK, TLH, IWM, MTUM.
|GOVT||ISHARES US TREASURY BOND ETF|
|MBB||ISHARES MBS ETF|
|EEM||ISHARES MSCI EMERGING MARKET|
|EFA||ISHARES MSCI EAFE ETF|
|SJNK||SPDR BLOOMBERG SHORT TERM HI|
|TLH||ISHARES 10-20 YEAR TREASURY|
|IWM||ISHARES RUSSELL 2000 ETF|
|MTUM||ISHARES MSCI USA MOMENTUM FA|
|Index Total Returns (%)1||1Q 2023||YTD||1 Year||3 Year||5 Year||10 Year|
|S&P 500 Index TR||3.67||7.50||-7.73||18.62||11.19||12.24|
|DJ Industrial Average TR||2.08||0.93||-1.98||17.33||9.01||11.15|
|NASDAQ Composite TR||6.78||17.05||-13.28||17.58||12.60||15.30|
|Russell 2000 Index TR||-4.78||2.74||-11.61||17.52||4.71||8.04|
|MSCI Emerging Markets Index GR||3.07||4.02||-10.30||8.23||-0.53||2.37|
|MSCI EAFE Index GR||2.61||8.62||-0.86||13.53||4.03||5.50|
|Bloomberg US Aggregate Bond Index TR||2.54||2.96||-4.78||-2.77||0.91||1.36|
As of 3/31/2023. Returns shown are total returns of indices. Returns over one year are annualized. It is not possible to invest direction in an index.
Volatility persisted in the month of March, with the CBOE Volatility Index (VIX) at one point spiking above 30 intraday2, a sign that investors are growing more concerned about global financial conditions.
The big stories of the quarter were centered on regional banks, starting with the failures of Silicon Valley Bank (SVB) and Signature Bank (SBNY), which occurred in part due to the fastest Fed hiking cycle in history. Credit Suisse Group, AG, came to the brink of failure before a takeover by UBS Group, AG. Big banks in the U.S. also stepped in when First Republic Bank got swept up in the contagion.
Stocks showed resiliency; the S&P 500 Index ended the month up modestly rising 3.67%. Both the Dow Jones Industrial Average Index and the Russell 2000 Index had weaker performance, ending the month up 2.08% and down 4.78% respectively. The Nasdaq Composite Index was the big winner of the major indices, returning 6.78%, as investors consider that the end of the Fed hiking cycle may be near.1
Index returns as of March 28, 2023:3
Meanwhile, fixed income markets were broadly up over the quarter, while a volatile U.S. 10-Year Treasury fell from 3.82% to 3.29%.
THE FED AND RATES
In large part due to the banking crisis, the Fed began to change its tone on rates. While the Fed raised interest rates twice in the first quarter, 25 bps in February and 25 bps in March, officials offered some signs that the Fed may be prepared to put a pause on further rate hikes4. Yields fell and bonds prices rose in response, with the yield on the U.S. 10-Year Treasury hovering around 3.29% as of publication5. The Fed remains focused on its goal of two percent inflation, and the consumer price index (CPI) continues to gradually fall6.
- Volatility is likely to persist. Investing is long term. Remember to keep your eyes on the horizon and focus on your long-term investment goals.
- Look for signs of recession. Now may be a good time to check in on portfolios and ensure they are not under-weight on fixed income exposure, which may offer income generation and portfolio protection in the event of another market downturn.
- Check your cash management. Due to higher interest rates, you can earn a yield on your cash too, whether in a savings account or through a CD. Make sure you know what you’re earning.
Thank you for your continued trust in VEGA.
AdvisorShares STAR Global Buy-Wrtie ETF (VEGA) Co-Portfolio Manager
- Data from Returns over one year are annualized.
- JPMorgan Wealth Source: Bloomberg Finance L.P., J.P. Morgan Wealth Management. Data as of March 28, 2023. Note: Tech proxied by the S&P 500 Technology Sector, Regional Banks by the KBW Regional Bank Index, and All Banks by the KBW Index.