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VEGA: May 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

  May 2019 YTD
VEGA NAV* -3.99% 8.14%
MSCI ACWI World Index -5.93% 9.08%
Cboe S&P 500 Buy Write Index (BXM) -2.9% 10.20%
Bloomberg Barclays U.S. Aggregate Bond Index (AGG) 1.78% 4.80%

As of 05.31.2019.

May saw a reversal from the consistent growth in the markets through the previous four months with the S&P 500 posting four consecutive weekly losses. Global markets followed suit as the MSCI ACWI dropped lower throughout the month. Bonds remained strong as predicted rate hikes and trade war concerns supported a near 2% return on the AGG.


The best place to be invested during the month of May would have been in Short-Term Fixed Income securities.

Security Ticker May Total Return %
iShares Short-Term Corporate Bond ETF – Short-Term Bond IGSB 0.72%
First Trust Low Duration Opportunities ETF – Short-Term Bond LMBS 0.59%


The biggest laggards in May for the VEGA ETF were Technology and Small Cap:

Security Ticker May Total Return %
SPDR Select Sector Fund – Technology XLK -8.66%
iShares Russell 2000 ETF – Small Cap IWM -7.85%

Top Holdings

Ticker Security Description Portfolio Weight %
[cash] BLACKROCK LIQUIDITY T 60 11.30%

As of 05.31.2019.


VEGA ETF participated in two rounds of Out-of-Money Call writing in May. The turbulence in the markets caused an early roll of the options and an additional collection of premium. The puts placed last month remained on as the desired exit conditions were not met.


A complex of market events, trade wars, geopolitical maneuvering, and Middle East saber rattling spooked investors. As the U.S. and China squared off over market-access issues and international copyright protection, Washington attempted to isolate one of Beijing’s most powerful conglomerates. Markets reacted to sustained yield curve inversions, which historically have been a herald of inflation, while the Federal Reserve Bank all but reversed itself on monetary policy. Through it all, the American consumer continued to radiate optimism.


 May was a cruel month for stocks. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average both posted losses of more than 6.0%, while the Nasdaq shed over 7.0%, the first negative month of 2019 and the first negative May performance for all three benchmarks since 2012, according to Dow Jones Market Data.

Investors flocked to bonds. As May came to a close, the inversion between the 3-month Treasury bill yield and its 10-year note counterpart widened to its deepest level since the financial crisis, with investors expecting a 10-basis point premium for holding 3-month bills over 10-year notes. The inversion was interpreted by traders as a harbinger of recession amid slowing U.S. growth and a potentially ruinous Sino-America trade war.

Earnings fared well given trade anxiety. For Q1 2019, the blended earnings decline for the S&P 500 was -0.4%. If earnings decline continues for the quarter, it would mark the first year-over-year decline in earnings for the index since Q2 2016. On a revisions basis, the estimated earnings decline for the quarter was -4.0%. Compared with March 31, sectors have higher growth rates today due to upward revisions to EPS estimates and positive EPS surprises.

In a note, fund adviser Hedgeye Risk Management forecast that the odds of a Fed interest rate cut will increase from 10% in June to over 80% by December, while the probability of at least two cuts and three cuts by year’s end are 41% and 11% respectively. “Even if [the Fed] still does not see a ‘compelling’ case for a rate cut,” wrote Hedgeye, “the markets believe that the Fed will indeed cut rates…. Certainly by the fall.”

Speaking of the Fed, the bank published a survey that found one-quarter of working individuals say they have no retirement savings and 44% worry their savings are inadequate. Households are also struggling to cover their day-to-day expenses, with 17% saying they wouldn’t be able to pay all their bills during the month of the survey.

U.S. Economy

Private employment increased by 27,000 from April to May, according to the ADP National Employment Report. Total nonfarm payroll employment increased by 75,000 in May and the unemployment rate remained at 3.6%, the lowest level in decades. The average hourly earnings for all employees on private nonfarm payrolls rose to $27.83 for an average hourly earnings increase year over year of 3.1%.

Inflation was docile. The Consumer Price Index for All Urban Consumers increased 0.3% in April on a seasonally adjusted basis after rising 0.4% in March, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all- items index increased 2.0% before seasonal adjustment.

Econintersect warned its readers to prepare for a slowdown, while cautioning that the strong indicators associated with Q1 GDP growth – at 3.2% year-over-year (recently re-estimated at 3.1%)- was attributable to a rise in inventory materials ordered but not yet sold. The website anticipated the economy would slow during Q2 within a range -0.2% to -0.5%, in no small part because of a lack of Boeing 737 Max jets. “Global economic growth is slowing,” it warned, “and that will reduce what countries buy from the U.S.”

Trade-dispute pressure continued to weigh on the retail sector. The Commerce Department reported that after a jump of 1.7% in March, U.S. retail sales declined 0.2% in April as Americans cut back spending on clothes, appliances, and home and garden supplies. A typical case was PVH Corp., owner of the Calvin Klein and Tommy Hilfiger brands, which announced it was cutting its full-year adjusted earnings forecast partly because of the U.S.-China trade dispute. “The volatile and challenging macroeconomic backdrop has continued into the second quarter, with particular softness across the U.S. and China retail landscape,” PVH Chairman and CEO Emanuel Chirico said in a statement.

The economy continued to hum on other fronts, however: consultancy Capital Economics reported that U.S. importers are switching to alternative suppliers in Asia to avoid the tariffs imposed on China – a tactic that could explain why custom-duty revenues have fallen back in the past couple of months; truck tonnage – a reliable and generally bullish indicator of economic activity – surged almost 8.0% in the year ending April is up 22% since just before the November 2016 elections, according to the American Trucking Associations; a decline in mortgage rates in May should invigorate a single-family home market stagnating due to high home prices; and the Conference Board Consumer Confidence Index continued to improve in May, thanks to employment gains and respondents’ faith in sustainable growth looking forward.


Global stock market trends show signs of weakening, with downside risks on the rise, warned Seeking Alpha. Though poised to rally in the wake of fourth-quarter weakness, Emerging Markets have receded to their April levels due to trade worries. Domestically, breadth deterioration continues to be seen at the individual stock and sector level. In addition, new lows by Emerging Markets on an absolute or relative basis could have negative implications for stocks in other parts of the world, according to the website. 

According to STRATFOR, under the headline “United States, Don’t Underestimate China’s Ability to Strike Back,” Beijing’s People’s Daily warned China could leverage its rare earth exports as a “counter weapon” to respond to U.S. tariffs and ongoing demands in trade negotiations. At the same time, China’s National Development and Research Commission, the country’s top economic planning agency, urged the state to prioritize domestic needs over the export market in the face of rising domestic demand for rare earths.

Upping the ante, Vice President Mike Pence’s chief of staff, Marc Short, demanded Chinese tech giant Huawei to stop working with Iran. “They need to stop those actions, stop cooperating with Iran at this time if they want to actually work with the United States,” Short said.

Once regarded as a subordinate in its U.S.-led military alliance, Japanese forces have taken on some regional security responsibilities themselves. This is driven by a combination of factors: The evolving North Korean security situation beginning in the late 1990s; the rise of China, and the recent encouragement of the United States for its regional allies to take on more local responsibility. Washington wants to reframe burden sharing from primarily financial and basing support to kinetic action with its allies and partners in the Indo-Pacific region.

Japan’s strategic location, advanced technological know-how, and parallel interest in countering a rapidly rising China reinforce its ongoing and expanding security cooperation with the United States. At the same time, Tokyo’s advanced economy and primary position as a maritime trading nation continue to stir competition in its relations with the United States.

Over in Europe, parliamentary elections resulted in a fragmented legislature as center-right Democrats and center-right Socialists lost ground to emerging forces, particular green and nationalist parties. Now, established parties will have to canvass smaller parties to pass legislation, which means upstart groups will have a say in shaping EU policies. Given the ideological gulf that separates the new delegates, expect floor fights over such issues as trade agreement and workers’ rights.

On the data front, the final IHS Markit Eurozone Composite PMI print was subdued as modest growth and trade-related fears persisted. The Composite PMI, which includes both the manufacturing and services sectors, rose to 51.8 in May, from 51.5 in April and slightly better than the flash reading of 51.6. Commenting on the survey results, Chris Williamson, Chief Business Economist at IHS Markit said: “The overall picture remains one of weak current growth and gloomier prospects for the year ahead. While the service sector has seen business conditions improve compared to late last year… there seems little prospect of any immediate improvement: new orders barely rose in May, painting one of the gloomiest pictures of demand seen over the past six years, and companies’ expectations of growth over the coming year likewise fell to one of the lowest in six years.”

PMI data was in line with hard-data, as euro area GDP rose by 1.2% year-over-year while EU28 GDP rose 1.5%. Coupled with unimpressive growth, euro area annual inflation is expected to be 1.2%, according to a flash estimate by Eurostat, the statistical office of the EU. According to Bloomberg, “Fears are mounting at the European Central Bank that investors are losing faith in the inflation outlook, in a self-reinforcing spiral that could force the institution to dig deeper into its stimulus toolkit.” Bloomberg also reports that European central banks are worried about “deanchored” inflation expectations, despite the ECB recommitting to low rates and a subdued monetary policy outlook.

Very Truly Yours,

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

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.