AdvisorShares STAR Global Buy-Write ETF

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August 2018 Portfolio Manager Review

Category Review

  August YTD
VEGA NAV* 1.36% 4.19%
MSCI World Index 1.24% 4.85%
BXM Index 1.90% 6.74%
Int. Gov’t/Credit Bond 0.59% -0.36%
Policy Benchmark 1.35% 4.49%

Policy Benchmark comprises the following allocation:VEGA Policy Benchmark is a blended benchmark of 37.5% MSCI World Index, 37.5% CBOE S&P 500 Buy/Write Index and 25% to the Barclays Intermediate Government Corporate Index.

Portfolio Review

VEGA posted a positive return of 1.36% during August. The indexes that make up the VEGA ETF Policy Benchmark were all positve during the month of August. CBOE S&P 500 BuyWrite Index increased by 1.90% during August. Bloomberg Barclays Intermediate U.S. Gov/Credit Bond started to gain some traction compared to recent performance and was up 0.59%. MSCI AC World Index was up again in August with a return of 1.24%.

For the month, VEGA’s Policy Benchmark was up 1.35%.


Just like July, August was an impressive month for several of VEGA's underlying holdings. Five of VEGA's holdings were up more than 1% in the month of August. Here are the top performers in descending order:



iShares Russell 2000 ETF



SPDR S&P 500 ETF Trust



Vanguard Index Funds Real Estate ETF



SPDR Series Trust Bloomberg Barclays Convertible



Financial Select Sector SPDR Fund



Two holdings that contributed negatively to performance during August: iShares MSCI EAFE ETF (EFA) and Xtrackers MSCI Europe Hedged Equity ETF (DBEU). EFA was down 2.24%, while DBEU was 2.03%.
Top 10 Holdings
Stock Ticker Security Description Portfolio Weight %


VEGA continued writing Out-Of-Money Calls on SPY and EFA, which continues to provide a buffer to the decline of the underlying securities and have adjusted the dial back to approximately 50% coverage on the Covered Calls as volatility has abate from it’s highs earlier this year. We continue to be out of Protective Puts at this time, as the pricing is not attractive.


Suddenly, it seemed, the global economy lost much of its punch. The tailwind of synchronized growth died under a layer of European weariness and the collapse of emerging markets; China throttled back on growth, first to deflate asset bubbles and most recently as a weapon in trade skirmishing with the US; Japan continued to struggle with inert consumer demand; and South Korea, a proxy for the direction of the global economy for its export-centricity, sputtered on weak capital investment and slow growth.

That left the United States as the world’s economic engine. It has acquitted itself admirably, delivering in the second quarter the strongest GDP growth in years thanks to robust consumer spending, a strong labor market and red-hot corporate earnings growth. But as quantitative easing diminishes in the Federal Reserve’s rear-view mirror and as the tonic of across-the-board tax cuts slowly expires, the defining feature of the world’s largest economy will be a restrictive monetary policy. Rising interest rates have already undercut home and auto sales in the U.S., to say nothing of emerging market currencies.

We at Partnervest anticipate continued strong U.S. growth for the balance of the year and we believe the economy will evade recession next year. At the same time, we see little help from the developing world, to say nothing of the evolving one. Similarly, we are watching the proliferation of non-market risk – be it political, geopolitical or trade related – that could make a hash out of the most thoughtful and well-researched forecasts.


We anticipate the Fed will raise rates two more times this year to a range of 2.25%-2.50%, against a forecast inflation rate of 2.75% and a 3.00-3.50% yield for the 10-year Treasury Note. As seen in the chart below, inflation has been steadily rising while wage growth has remained relatively flat.

Source: U.S. Bureau of Labor Statistics, FactSet

Our estimate for two more rate hikes this year, followed by one or two more in 2019, is broadly in line with other forecasts. Some, however, see six more rate hikes from now through the end of 2019.

Concerns about inverted yield curves are, in our opinion, overdone as we regard inversion to be a consequence of quantitative easing rather than a late-cycle auger of recession. Having undershot corporate earnings in our preliminary estimates, we have elevated our outlook for the remainder of the year at 12-13% and 17-18% for the whole of 2018. We anticipate the S&P 500 (U.S. Large Cap) and the Russell 2000 (U.S. Small Cap) will finish up 11% and 12%, respectively, on the year – in line with our original projections. On the fixed-income side, we maintain our forecast that the Barclays Capital U.S. Treasury Bond Index will end 2018 down 2.50%. On the currency front, we expect the dollar to strengthen against the euro to 1.15 EUR/USD at year end due to continued EU weakness. We believe the USD/Yuan will end 2018 around 7.0, the subject of a deliberate devaluation by Beijing.

Lastly, we are sticking to our original 2018 estimate and anticipate oil (WTI) will stage a minor recovery from last year, from $60 a barrel to approximately $65 a barrel.

U.S. Economy

After posting a second quarter performance of 4.2% (revised upwards from the 4.1% advance estimate), we expect the U.S. economy to downshift slightly to 3.0% on an annualized basis fueled in part by historically low unemployment and energized consumer spending.

Source: U.S. Bureau of Economic Analysis, FactSet Economic Estimates

While we expect the impact of fiscal stimulus to continue through the second half of the year, we are watching closely the slow-down in the housing and auto sectors. For example, the gap between home prices and Average Hourly Earnings is almost as wide as it was in 2006, which means fewer buyers can afford to purchase a home in many cities. In addition, the percentage of consumers who think it is a bad time to buy a car due to high prices reached a 20-year high of 21%, according to a recent survey by the University of Michigan. Ripples like that in the economy’s two most important goods markets suggest that consumer confidence extends as far as wage growth can outpace inflation.


Having ended 2017 with GDP growth for the year of 2.70% and poised to accelerate from there, the European Union stumbled badly in the spring. We now believe Europe cannot manage more than 2.25% growth this year amid flat interest rates. Nor do we suspect Japan or China to take up the slack, as the former flirts with recession – according to research firm Capital Economics, Japan “faces severe labor and capacity shortages that make it difficult to sustain above-trend growth," – and the latter contends with sagging manufacturing and nonmanufacturing activity alongside depressed equity markets.

While we can only guess how deeply the emerging market mess will go – fortunately, we liquidated our emerging market holdings last spring (clearly a timely move), and sold our Frontier Markets (Ticker: FM) position at the beginning of this month – we believe intuitively that its risk of contagion is limited due to a lack of critical mass. While we firmly believe that Frontier Markets are not similar to Emerging Markets the risk of contagion has grown enough that we believe it could impact Frontier Markets in the future. For example, as the IMF points out, Turkey represents about 3% of eurozone exports, equivalent to less than 1% of eurozone GDP. Turkish loans make up only a small proportion of eurozone bank lending and Turkish stocks constitute less than 1% of the MSCI Emerging Market Equity Index.

We see the developing world as a perpetual source of opportunity and instability. While they have advanced impressively over the decades, they have yet to earn international respect for their currency regimes, particularly in the face of rising interest rates in the developed world. Again, Turkey is the exemplar—they’ve been dipping into their reserves since 2013, which are now well below the IMF’s recommended levels. Only countries able to generate reliably large trade balances, such as China, seem to be immune to such pressure. And that practically puts the once-sleeping giant in a category by itself.

What’s more, though they have recently stabilized, we are still keeping tabs on emerging market currencies as the Fed continues on its tightening path and as debt levels remain elevated.

Source: The Wall Street Journal, The Daily Shot

Political Risk

The Conference Board’s Index of Leading Economic Indicators is rising comfortably and that alone is enough to sustain a buoyant outlook at least for the second half of the year. However, we appreciate that even the most intelligent of forecasts could be made obsolete in minutes given the potentially seismic events facing the global economy and the endless news cycle that can transmit them. For example, while we welcome successful efforts to repair trade relations between the U.S. and Mexico, the failure thus far of related negotiations between Washington and Beijing gives us pause.  Similarly, the potential for a transfer of power in the House of Representatives following this fall’s mid-term elections could introduce grinding legislative gridlock and uncertainty in U.S. policy. More ominously, if North Korea or Iran resume their nuclear ambitions in defiance of Washington, the market response – to say nothing of the potential human cost – could be staggering.

All or none of these things may come to pass over the next two quarters. In the neo-multipolar world, the safest bet is the unexpected.

So Where Do We Go From Here?

The Investment Committee at Partnervest is carefully watching these—and other—market and macroeconomic data points. After reviewing our forecasts and capital market expectations, we conducted a thorough and detailed review of our strategies, as well as an in-depth look at our individual line-item holdings. We reviewed key metrics such as performance, tracking error and volatility measures to ensure that each holding is meeting its stated investment objective within the larger portfolios. Through a detailed performance attribution analysis, we looked at individual holdings within certain positions to make sure that exposure to outsized security-specific risks is limited.

After much analysis and debate, the Investment Committee concluded after the removal of Frontier Markets, the current overall strategy and holdings are well-suited for the world at hand.  We identified nothing that rose to the level of challenging our high conviction positions and elected instead to be patient, but vigilant in a few areas.  At the moment, we are keeping a watchful eye on our allocations to Germany, the leading economy in a slowing Eurozone; Japan, which recently reported second quarter growth at an annualized 1.9% (vs. Q1’s 0.9% contraction); and Financials (XLF), which have benefited from tax reform and regulation, but have to deal with potentially slower loan growth and a flattening yield curve. As a result of our ongoing analysis and discussions, we are still comfortable maintaining the current allocations, but as mentioned before, we are mindful of the potential risks on the horizon and will react accordingly if circumstances sour.

Across our models, we are holding between 5-8% in cash, which can be deployed if we find attractive, fairly-priced opportunities. The Investment Committee is constantly evaluating and re-evaluating both our current positions as well as our new ideas, and we will certainly keep you, our clients, apprised of any pertinent and material changes.

On behalf of the entire team at Partnervest, we greatly appreciate your support, trust and confidence as we navigate through these ever-changing financial markets.  We encourage you to contact any member of the team to discuss these views, or any questions you might have.

Very Truly Yours,

David YoungDavid Young, CIO of Partnervest Advisory Services

Portfolio Manager of VEGA


Information is from sources deemed to be reliable, but accuracy is not guaranteed.
*Performance and pricing data used for VEGA ETF is based on the indicated value of the ETF at the close of the day.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus and summary prospectus which can be obtained by visiting Please read the prospectus and summary prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Other Fund risks included: allocation risk; derivative risk; early closing risk; Exchange Traded Note risk; liquidity risk, market risk; trading risk; commodity risk; concentration risk; counterparty risk; credit risk; emerging markets and foreign securities risk; foreign currency risk; large-, mid- and small- cap stock risk. Please see the prospectus for detailed information regarding risk. The Fund is also subject to options risk. Writing and purchasing call and put options are specialized activities and entail greater than ordinary investment risk. The value of the Fund’s positions in options fluctuates in response to the changes in value of the underlying security. The Fund also risks losing all or part of the cash paid for purchasing call and put options. The Fund may not be suitable for all investors.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times. Holdings and allocations are subject to risks and to change. The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or anytime thereafter.

The views in this material were those of the Portfolio Manager and may not reflect his views on the date this material is distributed or anytime thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.


The Cboe S&P 500 BuyWrite Index (BXM) is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index.

The MSCI World Index is a market cap weighted index which captures large and mid cap representation across 23 Developed Markets countires.

The Barclays Capital U.S. Intermediate Government Bond Index measures the performance of U.S. Dollar denominated investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.

The Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

An option is a privilege, sold by one party to another that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed upon price within a certain period or on a specific date. An option premium is income received by an investor who sells or “writes” an option contract to another party. A covered call option involves holding a long position in a particular asset, in this case shares of an ETP, and writing a call option on that same asset with the goal of realizing additional income from the option premium. A put option is a contract that gives the owner of the option the right to sell a specified amount of the asset underlying the option at a specified price within a specified time. A protective put is an option strategy which entails buys shares of a security and, at the same time, enough put options to cover those shares. This can act as a hedge on the invested security, since matching puts with shares of the stock can limit the downside (due to the nature of puts). Exercising an option means to put into effect the right specified in a contract.