October 14, 2019
After a tumultuous August in which the S&P 500 dropped over 4% but mostly chopped around based on trade war concerns, we saw a positive return in September. The benchmark index finished the month +1.87%. The Federal Open Market Committee (FOMC) meeting mid-month came and went without too much volatility from equity markets as their decision to cut rates by .25% was widely expected by market participants. On the fixed income side of things, rates were broadly higher across the curve this month with much of the move coming early in the month. The Bloomberg Barclays US Aggregate Total Return Bond Index finished the month -.53%.
The collared equity portion of the fund carried the month as our dividend equities participated in the up move in the S&P 500 and actually outperformed the broader market for the month as sectors that dividend strategies tend to overweight like Utilities, Industrials, and Energy led the way. Our collar was naturally a small drag for the month as the S&P 500 headed higher and the collar is designed to help mitigate losses in prolonged drawdowns in equity markets. The contribution effect of this portion of the fund was 1.11%.
The option income portion of the fund was a net drag for the month as our fixed income positions incurred losses with a higher rate environment and our option strategy suffered a bit especially early on in the month as the market trended higher. The contribution effect of this portion of the fund was -.22%
The market movement portion of the fund was mostly flat for the month. The positive impact of our long exposure via call spreads was mostly offset from losses we incurred from our short exposure via put spreads. This portion of the fund benefits from large moves in either direction over the course of a year in the S&P 500, and unfortunately, we've seen a pretty flat environment over the last 12 months despite some larger short term moves in the meantime. The contribution effect of this portion of the fund was -.06%.
To view the most recent performance for the Stadion Trilogy Alternative Return Fund, click here.
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.
The Federal Open Market Committee is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
The Bloomberg Barclays Global Aggregate Bond Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
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 long (or long position, AKA exposure) ) is the buying of a security such as a stock, commodity or currency with the expectation that the asset will rise in value.
A short, or short position AKA exposure, is selling first and then buying later. The trader's expectation is that the price will drop; the price they sell at is higher than the price they buy it at later. The difference between the sale price and the buy price produces a profit or loss.
A call spread is an option spread strategy that is created when equal number of call options are bought and sold simultaneously.
A put spread is an option spread strategy that is created when equal number of put options are bought and sold simultaneously.
One cannot invest directly in an index.
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