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VEGA: March 2019 Portfolio Manager Review

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund’s most recent standardized and month-end performance, please click

Portfolio Review

  March 2019 YTD
VEGA NAV* 1.40% 10.20%
MSCI ACWI World Index 1.26% 12.18%
BXM Index 1.76% 6.77%
U.S. Aggregate Bond Index 1.92% 2.94%


March followed suited with February and January and continued an upward trajectory.  March made the first quarter 2019 a very strong one.


The best place to be invested during the month of March would have been in equity investments:

Security Ticker March Total Return %
SPDR Select Sector Fund – Technology XLK 4.8%
SPDR Select Sector Fund – Consumer Staples XLP 3.8%
SPDR Select Sector Fund – Consumer Discretionary XLY 3.7%
SPDR S&P 500 ETF Trust SPY 3.2%
iShares Core U.S. Aggregate Bond ETF AGG 2.1%



The biggest laggards in March were bank loans and U.S. Small Cap:

Security Ticker March Total Return %
iShares Russell 2000 ETF IVW -2.1%
Invesco Senior Loan ETF BKLN -0.3%


Top 10 Holdings

Ticker Security Description Portfolio Weight %
[cash] BLACKROCK LIQUIDITY T 60 13.08%

As of 03.31.2019.


During the fourth quarter 2018, the VEGA ETF initiated several Volatility-Based reinvestments, meaning that based on the movement of the VIX Index, the VEGA ETF used cash to purchase back into the underlying portfolio. At the beginning of 2019, the VEGA ETF was near full investment. This allowed for the VEGA ETF to take full advantage of the rebound that occurred during the first quarter 2019. Additionally to being fully invested, VEGA ETF made a tactical shift to be more selective over our U.S. Large Cap exposure. Allocations were made to Technology, Consumer Staples, Consumer Discretionary and Healthcare. That change took place in late January through early February 2019. The markets continued to perform well, coming off their lows through February and into March. At that point, the markets seemed overpriced, especially U.S. Small Cap and Non-U.S. Developed. To take advantage of this perceived mispricing, the VEGA ETF removed 1/3 of its Non-U.S. Developed and 1/2 of its U.S. Small Cap exposures and de-risked the portfolio by keeping the proceeds in cash. VEGA ETF continued writing Out-Of-Money Calls on SPY and EFA, which continued to provide a buffer to the decline of the underlying securities and the ability to earn higher premiums due to increased volatility. Additionally, in March new Protective Puts were initiated as they seemed reasonably priced.


A relatively strong, albeit slowing, US economy in the first quarter mingled uneasily with the specter of an inverted yield curve – historically a herald of recession – and talk of lower interest rates. Markets moved higher though earnings trended lower, consistent with late-cycle trading. Industrial activity continued to slump but was offset by an improving housing sector. The key to continued growth – consumer spending – ended the quarter in a holding pattern after a strong holiday season, bad weather, a government shutdown and a $4 trillion decline in household net worth during the fourth quarter. However, continued improvement in real income should, in our view, help deliver a brighter second quarter.


“Nothing is written in stone,” Bloomberg’s Richard Breslow wrote on March 25 after the yield curve inverted. “Whether [recession] comes to pass or not doesn’t validate or negate the signal one way or the other.” Nevertheless, on a day when markets were pricing an easier Fed in 2019 than the European Bank, Breslow allowed that “it just isn’t possible to escape the fact that how the rest of the world is faring directly affects the US economy and asset prices.”

JP Morgan weighed in, pointing out that US equity markets were pricing in a mere 15% chance of recession – a far cry from the 66% chance at the start of the year – and discounting only a 3% decline in earnings. On the subject of earnings, FactSet Research reported the estimated earnings decline for the S&P 500 in the first quarter of the year is 3.9%, which if borne out would mark the first year-over-year decline in earnings for the index since the second quarter of 2016. However, it should also be noted that as corporations reduce expectations, outperformance becomes easier.

The Fed in March launched a hawk-to-dove reversal so compelling that the market-based probability of a rate cut in 2019 soared to over 75%, according to the WSJ’s Daily Shot blog. Moody’s noted that since the federal funds rate was raised last December, the 10-year Treasury yield has subsequently declined. This, in addition to an even deeper slide by Treasury bond yields, may increase the likelihood of a Fed rate cut.

The Kirk Report reported that the FAANG basket of stocks – Facebook, Amazon, Apple, Netflix and Alphabet (Google) – returned to outperformance status on the broader S&P 500, having lagged the market since the equity market peak in the third quarter of 2018. If the FAANG stocks can sustain their position as market leader, according to the report, it could provide some tailwind to the overall S&P 500 Index returns, as all but Netflix are top ten market capitalization weightings in the S&P 500 Index.

Heartland Advisors chief executive, Will Nasgovitz, in January expressed concerns over the torrent of corporate debt coming due in the next few years – $3.3 trillion to be exact, roughly half of all current outstanding commercial debt. “With interest rates low, the economy strong and relatively easy lending standards, the thinking went that borrowing to buy-back shares or finance acquisitions was a low-risk strategy,” Nasgovitz explained in a post. “But the next five years could severely test that Pollyanna view.”

The Fed, along with JPMorgan and the International Monetary Fund, in January proactively identified the $1.3 trillion global leveraged loans market as “excessively speculative”. Nevertheless, these and other comments didn’t prevent the asset class from having a very solid quarter—US leveraged loans had their best quarter performance in some time, returning 5.13%.

U.S. Economy

Ever docile, CPI rose 0.2% month-over-month in February while the core rate, which excludes food and energy, rose 0.1% month-over-month. On a year-over-year basis, CPI was up 1.5% while the core rate climbed 2.1%. “This report shows no reason for concern on the inflation front,” reported Seeking Alpha, “as the Fed assumed a more dovish posture with regards to monetary policy to combat falling financial asset prices.” Meanwhile, real average weekly earnings grew 1.6% on an annual basis in February, a decline from the January growth rate of 1.9%, but up from the rate of 0.9% one year ago.

The subsequent March unemployment report reassured economists and investors that February’s extremely weak print of 33,000 jobs added was an anomaly, as 196,000 jobs were added in March, exceeding the 175,000 expected by economists surveyed by the WSJ. The unemployment rate stayed put at 3.8% while average hourly earnings increased 3.2% year-over-year, another consecutive print with wage gains above 3%.

Existing-home sales rebounded strongly in February, according to the National Association of Realtors, as turnover rose 11.8 % from January to an annual rate of 5.51 million units in February. At the same time, sales of new single-family homes increased to an 11-month high in February – by 4.9% to an annual rate of 667,000 units – and sales for January were revised higher.  The recovery in sales for both sectors was attributed to lower mortgage rates. Meanwhile, construction spending increased in February for a third straight month, due to gains in both private and public demand, as spending rose 1.0 % to a nine-month high after an upwardly revised 2.5% surge in January.

The US Census Bureau reported that new orders for manufactured durable goods fell 1.6% in February, which follows a 0.1% increase in January and marks the first monthly decline in three months. Shipments of manufactured durable goods, which have been up three of the last four months, increased by 0.2%in February from the prior month.

 The University of Michigan’s sentiment index climbed to 98.4 in March from the prior month’s 93.8 thanks to low unemployment, rising wages and the Fed’s apparent reversal on interest rates. In contrast, the Conference Board survey slid to 124.1, down from 131.4 in February. Meanwhile, optimism about personal finances soared to its heights in 16 years, according to a February Gallup study, as 69% of Americans expect to be better off this time next year. Confidence increased in February to 131.4 from 121.7 in January, the Conference Board said, as expectations rebounded following recent months of market volatility and the government shutdown.


Overseas, threat of an economic slowdown looms large—indeed, some fears are already being realized. Italy’s recession dragged on through the quarter and the economy is expected to remain stagnate this year, economists now forecast. First quarter GDP is forecasted to fall 0.1% according to a Bloomberg survey, compared with the previous survey’s forecast of +0.1%. The OECD projects a 0.2% contraction in 2019, down from a 0.9% expansion previously estimated.

The Swiss government lowered its growth forecast for 2019 to 1.1% from 1.5% last forecast in December, itself a downgrade from 2%. “In particular, the outlook in other European countries has recently become much gloomier,” according to CNBC, “as a result, international demand for Swiss products is weaker and the export economy is losing momentum”.

The February German factory orders report was nothing short of a “disaster”, as aptly labeled by the Daily Shot, as manufacturing orders fell 4.2% month-over-month vs. economists’ expectations of a 0.3% increase. On a year-over-year basis, orders fell 8.4%, a rate not seen since 2009.

In China, investors and economists had concerns confirmed as industrial production in the first two months of the year rose only 5.3% year on year, the slowest since 2009 and below expectations, while factory gate inflation hovered at multi-year lows. Fixed asset investment growth quickened to 6.1% led by infrastructure spending. However, the most recent Caixin China General Manufacturing PMI provided some good news, as the Index “posted 50.8 in March, up from 49.9 in February, to signal the first improvement in the health of China’s manufacturing sector for four months.”

On the fiscal side, Beijing reported that the unemployment rate in urban areas nationwide jumped to 5.3% from 4.9%, while retail sales year to date rose 8.2%, the slowest pace since June 2003 when it bottomed at 8%. In an effort to help stimulate stronger growth, Premier Li Keqiang’s annual report to the National People’s Congress included a 2 trillion yuan tax cut along with the 3% VAT cut. Li also signaled additional cuts in the bank required reserve ratio for smaller banks.

In Japan, the Reuters Tankan March survey of manufacturers fell to +10 from +13, the lowest in 2.5 years. Beyond the usual concerns about world trade, Europe’s stagnation, Brexit and political jitters in emerging markets, managers complained that costs of raw materials were squeezing profits as higher prices could not be passed on to the consumer.

Commenting on US-China trade negotiations in January, Forbes wrote that “Evidence to date suggests that, after months of haggling, China hasn’t budged an inch on U.S. calls for structural reforms that would eliminate subsidies to China’s state-owned enterprises. Nor has Being agreed to concrete actions to curb rampant theft of American technologies.”

Despite a mixture of both good and bad data points locally and around the globe, US equity markets charged higher with one of their strongest quarters ever, and global equities were not far behind. Nevertheless, with declining earnings expectations—which may be confirmed in short order as earnings announcements are just around the corner—markets may have trouble ascending further. Global economies are generally slowing, in line with what we labeled earlier in our 2019 Annual Outlook as the “Great Moderation”; however, they have not stopped, and we do not see a recession coming in 2020. We believe there are still investment opportunities out there to take advantage of, and as always, our investment team is working diligently each day to maintain your trust and support and deploy capital in a responsible manner.

STAR Spectrum – Economic Outlook for 2019

At the end of 2018, the Partnervest Investment Management Committee began constructing our Economic Outlook for 2019 and beyond, which is then used as a guide for STAR Spectrum portfolio decisions. One outcome of the Economic Outlook is our operating thesis that 2019 will be the “year of the consumer”; the Investment Management Committee identified the following sectors as ones that we believe will benefit from a healthy consumer and be market leaders, and you may see these market sectors being added to your portfolio: Consumer Discretionary, Information Technology, Consumer Staples, and Health Care.

 Additionally, the Investment Management Committee concluded that the most appropriate risk allocation for the STAR Spectrum portfolios will be realized by holding a base of the market (for example, the S&P 500) and then identifying and investing in these specific market sectors that we identified as market leaders. This evolution from “riding the market momentum,” previously expressed with a style tilt (growth over value) in the large cap space, is an acknowledgement that as the cycle matures there will be increased differentiation at the sector level. 

The Economic Outlook also concluded that the U.S. economy has likely entered the late stages of the economic cycle, making it important to be more selective in the sector representation of the portfolio, as holding a broad market allocation would not be as beneficial. In addition to U.S. being late cycle, we believe that the rest of the world is not showing signs of positive momentum. As a result, we continue to maintain no direct weighting to Emerging Markets and only marginal weights to Non-U.S. Developed markets in the form of Germany and Japan. This small allocation will allow us a proper hedge and to diversify from strictly investing in the U.S. with the added benefit of allowing us to take a better position going forward should Non-U.S. Developed market conditions improve.

Very Truly Yours,

David Young
Partnervest Advisory Services, CIO
AdvisorShares STAR Global Buy-Write ETF (VEGA), Portfolio Manager


Past Manager Commentary

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.


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 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 ACWI World Index is is an unmanaged free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.

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.

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.

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.

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.

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.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting Please read the 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.