February 2020 turned out to be wildly volatile for financial markets. Both International and Domestic equity markets were bound by fear of a Coronavirus pandemic and this created unease about investing in global equity markets. Money moved swiftly out of those holdings and into traditionally safe-haven investments such as U.S. Treasuries.
The S&P 500 Total Return Index finished the month -8.23%; while the Bloomberg Barclays U.S. Aggregate Total Return Bond Index was +1.80% as investors piled into bonds causing rates to drop.
Digging into Trilogy's monthly returns, we saw the dividend paying equities of the strategy fall with U.S. equities. While the equities lost in value, the S&P 500 based collar that we employ helped to dampen that blow and covered nearly half of the losses from our equities. The contribution effect of this portion of the fund was -2.79%
Both sides of the option income portion of the fund did very well considering the huge move for equity markets during the month. Fixed Income provided a buffer as rates fell and our fixed income participated in that rally. Usually when markets move a great deal over a given month our short option strategy suffers some losses but, given our ability to purchase options back mid-month, we were able to see gains in this portion as well. The contribution effect of this portion of the fund was .75%.
The market movement portion of the fund was the real star of the month as puts that we own for risk mitigation really gained in value during the late month sell-off in equities. These puts are employed to help lessen the impact on the fund in the case of a large downward movement for equities The contribution effect of this portion of the fund was 2.80%.
To view the most recent performance for the Stadion Trilogy Alternative Return Fund, click here.
The S&P 500 Total Return Index is an unmanaged index of 500 common stocks chosen for market size, liquidity and industry group representation. It is a market-value weighted index. As a total return index, it assumes reinvestment of all cash distributions.
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.
A short, or short position, 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 short option strategy is a short position in which the tradeable interests are options.
A put is an option which conveys the right to sell something at a specific price
A collar is an option strategy that limits the range of possible positive or negative returns on an underlying security to a specific range.
One cannot invest directly in an index.
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