VEGA: 3rd Quarter 2024 Portfolio Review
Portfolio Update
| as of 9.30.2024 | 3Q 2024 | YTD |
| VEGA (NAV) | 4.96% | 12.53% |
| MSCI AC World Index | 6.61% | 18.66% |
| CBOE S&P 500 BuyWrite Index | 5.54% | 13.55% |
| Barclays U.S. Aggregate Bond Index | 5.20% | 4.45% |
In July, we implemented a rebalance designed to lower the overall portfolio beta by selling 5% of our SPDR S&P 500 ETF (SPY) position and reallocating the proceeds along with some portfolio cash across our existing fixed income holdings. The rationale behind the trade was to take some equity gains off the table and lower portfolio risk based on our near-term outlook for increased equity volatility. The result saw our broad equity target of 70% lowered to 65% with the balance increasing our fixed income holdings and cash to 35%. We have maintained these broad asset allocation targets throughout the balance of the third quarter.
Top Holdings
| Ticker | Security Description | Portfolio Weight % |
| SPY | SPDR S&P 500 ETF TRUST | 40.20% |
| IUSB | ISHARES CORE TOTAL BOND ETF | 22.71% |
| EFA | ISHARES MSCI EAFE ETF | 12.21% |
| MBB | ISHARES MBS ETF | 5.51% |
| IWP | ISHARES RUSSELL MID-CAP GROW | 5.40% |
| DYNF | BLACKROCK US EQY FCTR ROTATE | 4.23% |
| GOVT | ISHARES US TREASURY BOND ETF | 3.44% |
| EEM | ISHARES MSCI EMERGING MARKET | 2.58% |
As of 9.30.2024. Cash not included.
Activity
Volatility spiked to near all-time highs in August on the heels of a disappointing jobs report, triggering a sharp sell-off in the S&P 500. This three-day sell-off provided an opportunity to close out our August options early, retaining the full premium and re-selling additional calls with the same maturity. A similar opportunity presented itself in September; however, the Federal Open Market Committee’s decision to cut the target Federal Funds rate by 50 bps after their September 18 meeting initiated a market rally that ultimately led us to close our second round of September calls earlier than anticipated at a loss. Closing out the third quarter we purchased a 20% out-of-the-money put on SPY expiring on January 17, 2025, providing some additional downside protection to the portfolio through year-end.
Market Outlook
MARKETS
| Index Total Returns (%) | 3Q 2024 | YTD | 1 Year | 3 Year | 5 Year |
| S&P 500 Index TR | 5.89 | 22.08 | 36.33 | 11.88 | 15.94 |
| DJ Industrial Average TR | 8.72 | 13.93 | 28.85 | 9.96 | 11.77 |
| NASDAQ Composite TR | 2.76 | 21.84 | 38.7 | 8.87 | 18.84 |
| Russell Mid Cap TR | 9.21 | 14.63 | 29.3 | 5.72 | 11.26 |
| Russell 2000 Index TR | 9.27 | 11.16 | 26.74 | 1.81 | 9.34 |
| MSCI Emerging Markets Index GR | 8.82 | 17.13 | 26.41 | 0.75 | 6.09 |
| MSCI EAFE Index GR | 7.35 | 13.55 | 25.45 | 6.1 | 8.81 |
| Bloomberg US Aggregate Bond Index TR | 5.2 | 4.45 | 11.57 | -1.39 | 0.33 |
As of 9.30.2024. Data is from Bloomberg. Returns over one year are annualized. TR = total return. GR = gross return.
It is not possible to invest directly in an index.
The third quarter saw a shifting of the guard across major asset class returns as first half of the year leaders like the “magnificent 7” and broader large cap growth gave way to U.S. small cap, large cap value, and emerging market equities. Lower expectations for interest rates as well as slowing growth rates in the mega cap tech stocks helped to contribute to this shift. Meanwhile, a decline in the persistent strength of the U.S. dollar provided a tailwind to international asset classes including both developed and emerging equities as well as global bonds.
The Federal Reserve cut the target federal funds rate from a range of 5.25-5.50% down to 4.75-5.25% during their September FOMC meeting.1 Labor market trends have shifted more positive towards the end of the quarter seeing the unemployment rate fall from 4.3% in July down to 4.1% in September. This shift alongside relatively stable inflation data has allowed the Fed to take a patient approach with respect to near-term policy movements with the market pricing in just 25bp cuts at each of the Fed’s remaining two FOMC meetings in 2024.
Thank you for your continued trust in VEGA.
Respectfully, 
Matt Heimann, CFA CreativeOne Wealth, LLC
AdvisorShares STAR Global Buy-Wrtie ETF (VEGA) Co-Portfolio Manager
Past Commentary
The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.
The information here is not intended to constitute an investment recommendation or advice. Sources:
- Federal Reserve Bank of St. Louis Economic Data: Federal Funds Target Range – Upper Limit, observed 10/15/24
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.
This material has been prepared for information and educational purposes and should not be construed as a solicitation for the purchase or sell of any investment. The content is developed from sources believed to be reliable. This information is not intended to be investment, legal or tax advice. Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in a period of declining values.
Definitions:
bp or Basis point is one hundredth of a percentage point (0.01%).
The Bloomberg US Aggregate Bond Index broadly tracks the performance of the U.S. investment-grade bond market. and is comprised of investment-grade government and corporate bonds.
The BXM Index or CBOE S&P 500 BuyWrite Index is designed to measure the total rate of return of a hypothetical “buy-write”, or “covered call”, strategy on the S&P 500 Index.
A 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.
The Dow Jones Industrial Average is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange and Nasdaq.
The MSCI All Country World Index (ACWI) 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.
The MSCI EAFE Index is a broad market index of over 900 stocks located within 21 countries in Europe, Australasia, and the Middle East and is often used as a benchmark for global developed market equities.
The MSCI Emerging Markets Index is used to measure the financial performance of mid- and large-cap companies in fast-growing economies in 25 countries throughout the world.
The Nasdaq Composite Index is a market capitalization-weighted index of more than 3,700 stocks listed on the Nasdaq stock exchange which is heavily weighted to the technology sector.
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.
A 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).
A 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.
The Russell 2000 Index refers to a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index and is widely regarded as a bellwether of the U.S. economy because of its focus on smaller companies that focus on the U.S. market.
The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks.
A short position is the sale of a borrowed investment with the expectation that it will decline in value.
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 or summary prospectus, a copy of which may be obtained by visiting www.advisorshares.com. 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.