August 12, 2019
US equity markets continued to rise in July, albeit at a slower rate than June. As anticipated, the Federal Reserve cut its federal funds rate at the end of the month and investor's expectation that the central bank would do so seemed to buoy US equities throughout the month. The S&P 500 Index gained +1.44% on a total return basis. US Treasury yield curve rates remained relatively unchanged for the month, but the front end of the curve did move up slightly. The US Treasury 3-Month note closed the month at 2.08% and the 10-year note ended the month at 2.02%.1 The Bloomberg Barclays US Aggregate Bond Index gained +.22% on a total return basis.
The collared equity portion of the Trilogy fund contributed to performance for the month as our dividend equities participated in the broader US equity rally. Our collar, which we employ as a risk-mitigating tactic, was a natural drag as the potential risk reduction they offer during larger market drawdowns was not needed during the month. The contribution effect of this portion of the fund was +.27%.
The option income portion of the fund struggled in July as US equity markets continued the rally higher. This continued move higher meant that we had to buy options back at higher prices than we had sold them as the S&P 500 Index moved away from strikes that we had sold. Our fixed income portion was mostly flat for the month. The contribution effect of this portion of the fund was -.50%
The market movement portion of the fund had a good month of performance as the trend has now continued higher and this portion of the fund is relatively long now. As the S&P 500 continued higher, the long call portion of the fund participated in this rally. The put spreads that the fund owns in this portion of the fund for protection against large prolonged drawdowns in the market were a natural drag for the month. The contribution effect of this portion of the fund was +.23%.
To view the most recent performance for the Stadion Trilogy Alternative Return Fund, click here.
Accessed August 2, 2019
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
Yield Curve is a line that plots interest rates of bonds, at specific point in time, which have equal credit quality but different maturity dates.
The 3-Month Treasury note is a short-term U.S. government security with a constant maturity period of 3 months.
The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.
An option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction. The price of an option derives from the difference between the reference price and the value of the underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option.
A collar is an option strategy that limits the range of possible positive or negative returns on an underlying security to a specific range.
A strike price is the price at which a specific derivative contract can be exercised.
Bloomberg Barclays Capital U.S. Aggregate Total Return Bond Index is an unmanaged index of prices of U.S. dollar-denominated investment-grade fixed income securities with remaining maturities of one year and longer.
One cannot invest directly in an index.
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