VEGA: 3rd Quarter 2023 Portfolio Review
|as of 09.30.2023||3Q23||YTD|
|MSCI AC World Index||-3.40%||10.06%|
|CBOE S&P 500 BuyWrite Index||-2.84%||7.33%|
|Barclays U.S. Aggregate Bond Index||-3.23%||-1.21%|
In the third quarter, we rebalanced the underlying asset allocation focusing on de-risking the overall portfolio by removing our target weights for US Small Cap, Short Duration High Yield, and the MSCI US Momentum factor. Changes within the equity model were largely rebalanced into the more depressed Developed International allocation to re-shore our target geographic diversification. On the fixed income side, we reallocated towards a core exposure of intermediate duration, domestic, investment-grade credit, based on attractive relative spreads and the reinforced narrative of higher for longer rates.
|Ticker||Security Description||Portfolio Weight %|
|SPY||SPDR S&P 500 ETF TRUST||37.33%|
|EFA||ISHARES MSCI EAFE ETF||18.93%|
|IUSB||ISHARES CORE TOTAL BOND ETF||18.33%|
|IWP||ISHARES RUSSELL MID-CAP GROW||8.96%|
|GOVT||ISHARES US TREASURY BOND ETF||4.08%|
|MBB||ISHARES MBS ETF||4.04%|
|EEM||ISHARES MSCI EMERGING MARKET||3.99%|
As of 09.30.2023. Cash not included.
Covered Calls: All the monthly calls sold in the third quarter expired worthless or were repurchased at a low price to roll into new options. A late surge in the VIX in September allowed us to increase our coverage on the SPDR S&P 500 ETF (SPY) from 60% to 70% and take advantage of more attractive premiums. And, as volatility began to increase in September, we were able to open and close our October expiration options 3 times to capture most of the premium with the last one expiring worthless in October. We typically roll the options once in a monthly cycle. The increase in volatility also allowed us to set out of-the-moniness strike prices of 3.5%, 3%, and 4.1% in July, August, and September, respectively.
|Index Total Returns (%)1||September||YTD||1 Year||3 Year||5 Year|
|S&P 500 Index TR||-4.77||13.07||19.79||10.46||9.92|
|DJ Industrial Average TR||-3.42||2.73||17.14||9.05||7.14|
|NASDAQ Composite TR||-5.77||27.11||24.21||6.87||11.41|
|Russell 2000 Index TR||-5.89||2.54||8.27||7.24||2.4|
|MSCI Emerging Markets Index GR||-2.57||2.16||12.49||-0.94||0.94|
|MSCI EAFE Index GR||-3.37||7.59||26.78||6.04||3.74|
|Bloomberg US Aggregate Bond Index TR||-2.54||-1.21||0.34||-5.26||0.10|
As of 09/30/2023. Returns shown are total returns of indices. Returns over one year are annualized. It is not possible to invest direction in an index.
Asset class returns were largely negative across the quarter as the market digested the Federal Reserve narrative of a ‘higher for longer’ rate environment. Rising yields weighed on both domestic equities and fixed income alike, while a resurging US dollar continued to provide a headwind for international equities.
The Federal Open Market Committee met in July and September during the third quarter, raising the target federal funds rate by 0.25% during the July meeting to a target range of 5.25-5.50%, and then holding rates steady in September. A blowout jobs report in September showed that nonfarm payrolls increased by 336,000, easily beating expectations of 170,000, and placing further pressure on the Fed to ensure financial conditions are sufficiently tight to slow inflation down to their long-term target.2
As we look to the start of the fourth quarter, markets will turn their attention to third quarter earnings to gauge consumer strength and company’s outlooks for future growth. We expect heightened volatility around any downward revisions in company outlooks as showing signs of the lagged effects of tight monetary policy beginning to weigh on economic growth.
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
- Jobs report September 2023: Payrolls soared by 336,000 in September (cnbc.com)
Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations for the respective strategies are shown gross of fees. If fees were included returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Also, since the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.
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