Liquid Strategies Insights & Commentary

Manager Commentary - Q4 2019

Author: Shawn Gibson

The final quarter of 2019 was one of the significant milestones and achievements for Liquid Strategies, marking the 6th full year of managing a conservative, risk-controlled option writing overlay program designed to add excess return to fully invested portfolios with a modest increase in overall portfolio volatility. In addition to applying the overlay program on top of existing client assets on a customized basis, the application of the Overlay expanded to provide separate account and packaged solutions (funds and ETFs) to allow the overlay to sit on top of six core underlying sources of beta: 1) Large Cap U.S. Equity; 2) Small Cap U.S. Equity; 3) Non-U.S. Equity 4) Core Bonds; 5) Municipal Bonds; and 6) Short-Duration Bonds. For investors that would have been invested in these various strategies since the inception of the firm, below are the illustrative long-term performance results:

ANNUALIZED SEPARATE ACCOUNT ILLUSTRATIVE RETURNS (Net1)

11/01/2013 - 12/31/2019

  1 YEARS 3 YEARS 5 YEARS Inception to Date
Large Cap Equity + Overlay 34.35% 15.62% 13.90% 14.93%
S&P 500 Index  31.49% 15.27% 11.70% 12.68%

 

Small Cap Equity + Overlay 25.55% 8.72% 11.69% 11.86%
S&P 600 Index 22.78% 8.36% 9.56% 9.70%

 

Foreign Equity + Overlay 17.70% 10.74% 8.82% 8.05%
MSCI ACWI ex US 21.51% 9.87% 5.51% 3.95%

 

Core Bond + Overlay  11.25% 4.74% 5.36%  5.64%
Bbg Barc US Agg Index 8.72% 4.03% 3.05% 3.27%

 

Municipal Bond + Overlay  9.80% 4.96% 5.46% 6.25%
Bbg Barc Muni Bond Index 7.54% 4.72% 3.53% 4.23%


1
Net of fees assumes a 0.75% management fee applied monthly. These returns are illustrative, hypothetical numbers representative of two actual return streams (Liquid Strategies Overlay and the underlying index ETF). The numbers illustrate what would have happened had we taken the underlying index ETF returns and added Liquid Strategy Overlay returns to them. Source: Morningstar, Liquid Strategies.

OVERLAY + SHORT DURATION FIXED INCOME ANNUALIZED PERFORMANCE (Net2)

11/01/2013-12/31/20191

  1 YEAR 3 YEARS 5 YEARS Inception to Date
Theta Income Strategy 6.90% 2.50% 3.36% 3.13%

2Net of fees assumes a 1.00% management fee. 

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Topics: Overlay, Volatility

A Bird in the Hand

Author: Brad Ball

Everyone has heard the proverb “a bird in the hand is worth two in bush”. This most assuredly applies to income investing today. Too many investors are focused on the “second” bird in the bush, or the potential for equity appreciation.

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Topics: Overlay, Theta Income

Check the Rearview, but Keep Your Eyes on the Road

Author: Justin Boller

The end of a year is always a good time to reflect on what just happened and try to take a guess as to what lies ahead. Coming off 2018 where nearly nothing worked in portfolios, this year has proven to be the exact opposite with all major asset classes posting positive returns through the end of November.  Not only have the returns been positive, they have been exceptionally strong for both stocks and bonds.

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Topics: Overlay, Theta Income

What is an Overlay?

Author: Shawn Gibson

The term “Overlay” has been used multiple ways in the investment management industry, but when we think of the term, we envision a fully-invested investment portfolio with an options-based strategy that sits on top of the portfolio. This overlay effectively converts a two-dimensional investment portfolio into a three-dimensional portfolio where the 3rd dimension (the options overlay) alters the risk/reward profile of the overall combined portfolio. Investors that utilize overlays generally do so with the goal of reshaping the potential investment outcomes with the most common goals being 1) generating supplemental income/return (typically through covered call or put writing strategies); and 2) reducing the risk of the existing portfolio beta exposure (typically through collar strategies).

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Topics: Overlay

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