Domestic equity action was a little tamer, but still positive, in March and the S&P 500 index finished the month up +1.94% on a total return basis. Fixed Income also ended the month on a positive note, for the most part, as rates dropped across the curve during March and have actually seen an inversion occurring on the curve's front end as the yield for 3-month treasuries is now above that of the 2-year note. Both domestic equity gains and rate drops can trace at least a portion of their positive moves back to the Fed's decision to not raise interest rates. The FOMC (Federal Open Market Committee) has also lowered their guidance for the number of rate increases in 2019 signaling a more "dovish" or "easy money" stance towards markets.
In the collared equity portion of our fund flight to quality equities participated in the rally for the month. The S&P 500 collar that we have overlaid on these equities to attempt to mitigate the risk of sustained market drawdowns in equities was a natural drag as the S&P 500 index rose over the month. The contribution effect of this portion of the fund was .32%.
The option income portion of the fund had a good month in March as the rate drop helped our fixed income portfolio and the tamer equity market made for a much better March for our option selling strategy. Our option selling strategy that struggled during January and February due to equity markets moving in a single direction had a much better month as market action was more muted. The contribution effect of this portion of the fund was .68%.
The market movement portion of the fund also had a better month in March as the overall trend has now started to turn higher. This portion of the fund is built to perform well during long sustained market trends and we are now close to +10% on a 1-year total return basis for the S&P 500 index. The long portion of the market movement bucket was more than enough to overcome the drag from our risk-mitigating put spreads for the month and the contribution effect of this portion of the fund was .24%.
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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.
A collar is an option strategy that limits the range of possible positive or negative returns on an underlying security to a specific range.
The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
An option strategy that limits the range of possible positive or negative returns on an underlying security to a specific range.
A put is an option which conveys the right to sell something at a specific price.
A spread is the difference between the bid and the ask price of a security or asset. It can also refer to an options position established by purchasing one option and selling another option of the same class but of a different series.
One cannot invest directly in an index.
The Reports’ commentary, analysis, opinions, advice, and recommendations represent the personal and subjective views of the author and are subject to change at any time without notice.
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