by Chase Thomas and Harvey Sax
Markets continue to send mixed signals. Equity indexes remain relatively close to recent highs, but participation beneath the headline indexes has been uneven. Large technology companies have provided support for the cap-weighted S&P 500, while small-cap stocks and the equal-weighted S&P 500 have shown weaker performance. Market breadth remains limited, and individual stocks have experienced substantially different results from the broader indexes.
Interest rates remain an important factor for both equity and fixed-income markets. Treasury yields remain elevated, while many bond funds have experienced declines this year. Uncertainty also remains around oil prices and developments involving Iran and the Strait of Hormuz. Oil has experienced significant intraday movements as market participants respond to changing headlines and expectations.
The current environment remains difficult to navigate, with market conditions sometimes reversing significantly within a single trading session. These conditions reinforce the importance of monitoring individual positions and adjusting exposures as circumstances change.
The fund has changed relatively little since the previous update and currently holds approximately 17% in cash. Individual stock performance has varied considerably, with many holdings experiencing meaningful declines even as the broader cap-weighted S&P 500 has remained relatively resilient.
As the quarter approaches its end, insider purchasing activity is generally limited by trading restrictions. This can reduce one source of buying activity during the period, with insiders generally able to resume purchases after the quarter ends.
Nvidia recently announced an additional $150 billion authorization for share repurchases. The stock increased following the announcement after remaining relatively flat for several months.
The portfolio continues to be reviewed on an individual-position basis, with attention given to whether each holding continues to serve its intended purpose under current market conditions.
The fund continues to actively manage its S&P 500 option positions. Covered calls that moved into the money were split-rolled, while sold puts were rolled further out. These positions remain within their target ranges.
The fund is also continuing to unwind its oil trade. Approximately 10% to 15% of the sold oil option value is scheduled to expire this week. Recent price movements have made the process more active, with positions sometimes moving substantially closer to their strikes within a short period of time. The current process involves closing the call side and rolling toward short-duration put positions, with the overall oil exposure continuing to be reduced.
Volatility positioning remains conservative. The fund's allocation is below the approximately 10% level typically maintained, while sold options remain approximately 40% to 45% out of the money. UVXY has continued to trade near new lows despite recent market developments.
Rapid market reversals have also created additional costs as option positions have required multiple adjustments. On one trading day, preliminary results for Alpha Low Volatility Fund showed the fund up more than 1% at the open before closing down 0.3%, before fees, while the underlying market finished within approximately 50 cents of where it began the session.
Current positioning remains focused on managing existing exposures rather than making a directional forecast for the broader market. The investment team is continuing to unwind the oil trade, maintain conservative volatility exposure, and actively manage S&P 500 options.
The current environment is particularly sensitive to rapid reversals. A sustained move in either direction can be managed through the existing positioning, while sharp movements in both directions within a single trading day can require additional adjustments and associated transaction costs.
The Alpha Low Volatility Fund result referenced above is preliminary, for a single trading day, and before fees. Fund performance figures are subject to change as reporting is finalized.
The views expressed reflect current market commentary as of the date of this communication and are subject to change without notice. Performance figures are preliminary, unaudited, and shown before applicable fees and expenses unless otherwise noted; actual investor results may differ based on fee structure and the timing of contributions or withdrawals. Nothing herein is a guarantee or forecast of future performance. This material is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security, fund, or investment strategy. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal.
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