Buy and Hedge Retirement Update and Peer Performance Review

Click here for a PDF version of our peer performance review.

Adjustments to Buy and Hedge Retirement Portfolios

This week you may notice some adjustments within portfolios as the ZEGA traders look to rebalance a bit by reinvesting some avoided losses.

Typically, we have several tranches or expirations on at a time. As those move towards maturity, we roll them forward to a future expiration. The benefit of having these dates spread apart is the ability to monetize hedges via reinvesting avoided losses.

What you will see is some calls being closed and some new ones put on.

Since markets have moved lower, the new strike prices will be set at lower levels commensurate with our current environment.

Selling Covered Calls on a Piece of the Portfolio 

As you review portfolios you may notice some short calls paired against long calls for next June’s expiration.

By selling a short call, it creates a long call spread where we take in the premium sold as a credit. The design here is to allow us to leg into another roll in expirations in the future. The credits received will help offset those additional purchases where we reinvest other expirations avoided losses. At the same time, should markets retrace lower, we will be able to buy back those short calls cheaper to realize some profits.

This shouldn’t be taken as a bullish or bearish view. Rather it simply is a step before adding additional market exposure through reinvesting avoided losses at lower market levels.

This also preserves the ability to add more calls (long market exposure) should conditions warrant.

Adjustments to Fixed Income Hedges

A small change you’ll notice is taking off half of the investment grade bond interest rate hedge.

This adjustment was done post Fed meeting where the market reacted positively to the meeting and subsequent speech and press conference by Jay Powell. We continue to hold the remaining of that portion of the hedge as well as our hedge on High Yield fixed income.

We’ll continue to update everyone should any other adjustments warrant communication.

Hedged Equity Peer Comparison

Finally, a quick recap of our peer analysis for June. You’ll notice that while our Buy and Hedge Retirement strategy was still ranking at the top for both 3- and 5-year performance, our 1 year and year to date numbers have moved lower in comparison. A good portion of that was the short duration high yield fixed income component.

Since June we have seen some recovery of that component.

We’ll continue to update everyone on this and any material changes or adjustments as we continue along the second half of 2022.