March saw the first sign of a potential "chink in the armor" for U.S. equities as the S&P 500 finished roughly flat for the month. The underperformance comes on the heels of four really strong performance months during which the S&P 500 rose just over 12% from the end of October last year. Rates spiked to start but then declined mid-month to remain relatively unchanged. As a result, the Barclays U.S. Total Return Aggregate Bond Index was also close to flat for the month, finishing -0.05% for March.
Equities in the Fund underperformed the S&P 500 on a relative basis in March, both from a sector weighting standpoint and a security selection standpoint, which seemed to be the general theme in dividend growth strategies for the month. The technology sector was responsible for the bulk of the underperformance. The S&P 500 collar that the Stadion Trilogy Alternative Return Fund employs to dampen volatility and protect the equity portfolio from a bear market was understandably close to flat for the month given the lack of a movement in the index. The contribution effect of the collared equity portion of the Fund was -0.57% for the month.
The fixed income in the Fund was close to flat for the month, while writing options was a positive net performer for the month. When markets don't move very much for a period of time, it is generally a good environment for writing shorter dated options to generate premium. The contribution effect of the option income portion of the Fund was 0.12% for the month.
The market movement portion of the Fund was also able to generate a bit of performance for the month. While the Fund paid for protection over the course of the month, the alternative long position in the Fund generated positive performance with volatility remaining low over the month. The contribution effect of this portion of the Fund was +0.18% for the month.
Wrapping up the first quarter of the year, we saw the S&P 500 rise and rates stay range bound for the most part leading to a continued outperformance of highly correlated, passive investments on the macro stage. Here at Stadion and specifically for our alternative funds, we see a need for investors to incorporate low correlation, low volatility funds as a diversification agent in their portfolios. What the next quarter and the rest of 2017 brings is anyone's guess, but we will continue to follow our rules based process designed with risk management in place.
To view the most recent performance for the Stadion Trilogy Alternative Return Fund, click here.
Performance data quoted represent past performance. Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. Stadion’s actively managed portfolios may underperform in bull markets. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance data may be lower or higher than the performance data quoted. To review our most recent monthly performance, please visit www.stadionfunds.com.
An investor should consider the investment objectives, risks, and charges and expenses of the Stadion Funds carefully before investing. The prospectus contains this and other information about the Funds. A copy of the prospectus is available by calling Stadion Funds directly at (866) 383-7636 or Stadion Money Management, LLC, the investment advisor, at (800) 222-7636. The prospectus should be read carefully before investing.
The index shown is defined as follows. 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. One cannot invest directly in an index. Barclays Capital U.S. Aggregate 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. All Benchmarks composite data supplied by third party vendors, assumes re-investment of all dividends.
The Stadion Trilogy Alternative Return Fund will consist of an equity component (“Collared Equity”), an income component (“Option Income”) and a trend component (“Market Movement”).
Collar: A protective option strategy created by purchasing an out of the money put option while simultaneously writing an out of the money call option.
Call: An option which conveys the right to buy something at a specific price.
Put: An option which conveys the right to sell something at a specific price.
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.
*Performance numbers as of March 31, 2017
There are additional costs and potential risks associated with investing in domestic and international Exchange-Traded Funds (ETFs). Investment in the Fund is subject to investment risks, including, without limitation, market risk, management style risk, risks related to “fund of funds” structure, sector risk, fixed income risk, tracking risk, risks related to ETF net asset value and market price, foreign securities risk, risks related to portfolio turnover and small capitalization companies risk. Since each Stadion Fund is a “fund of funds,” an investor will indirectly bear fees and expenses charged by the underlying ETFs and investment companies in which a Stadion Fund invests in addition to a Stadion Fund’s direct fees and expenses. More information about these risks and other risks can be found in the Fund’s prospectus.
Other associated risks: Market risk inside collar, tracking risk, path dependency risk.
Derivative instruments can be volatile and the potential loss to the Fund may exceed the Fund’s initial investment. Derivative instruments may be difficult to value and may be subject to wide swings in valuations caused by changes in the value of the underlying instrument. The use of these instruments requires special skills and knowledge of investment techniques that are different than those normally required for purchasing and selling securities. The Fund could also experience losses if it is unable to close out a position because the market for an instrument or position is or becomes illiquid.
The Fund’s foreign investments generally carry more risks than funds that invest strictly in U.S. assets, including currency risk, geographic risk, and emerging market risk. Risks can also result from varying stages of economic and political development; differing regulatory environments trading days, and accounting standards; and higher transaction costs of non-U.S. markets. Investment objective: Total return, with an emphasis on lower risk and volatility than the U.S. equity markets.
The Stadion Funds are distributed by ALPS Distributors, Inc.
An investor should consider the investment objectives, risks, and charges and expenses of the Stadion Funds carefully before investing. The prospectus contains this and other information about the Funds. A copy of the prospectus is available by calling Stadion Funds directly at (866) 383-7636 or Stadion Money Management, LLC., the investment advisor, at (800) 222-7636. The prospectus should be read carefully before investing.
The Stadion Funds are distributed by ALPS Distributors, Inc. An investment in the Funds involves risk, including loss of principal.