2nd Quarter 2013
The Fund slightly outpaced its S&P 500 Index benchmark during the second quarter in posting modest gains. The portfolio’s ability to hold its own in a generally rising equity market was a welcome sign after a relatively disappointing first quarter to the year.
In examining the return pattern of the Fund for the quarter, it also reinforced the portfolio’s ability to dampen the blow of potential market corrections. From roughly mid-May through mid-June, the S&P 500 declined sharply sparked by Federal Reserve comments about potentially tapering its quantitative easing program. The Fund declined less dramatically than its benchmark in validating our investment premise that risk mitigation is one of the keys to enhancing long-term returns.
The Fund benefited from strong stock selection, which outperformed our built in restraint on the portfolio from selling call options on each individual equity position and owning index put options to guard against any significant market declines. Stock selection in aggregate was substantially greater than the portfolio’s total return, as the combination of selling calls and owning put options limited recapture. It would take a market decline of 10% or more for our hedging strategy to fully kick in to help reduce the risk on the downside. In focusing on striking a balance between risk and reward, we believe this methodology is likely to prove rewarding over time.
Within the underlying portfolio, we remain focused on value as defined by cash flow and dividends. Dividends once again played an important role in the performance of the Fund during the quarter, with its dividend yield exceeding that of the S&P500.
Note: By selling covered call options, the Fund limits its opportunity to profit from an increase in the price of the underlying stock above the exercise price, but continues to bear the risk of a decline in the stock. A liquid market may not exist for options held by the Fund. If the Fund is not able to close out an options transaction, it will not be able to sell the underlying security until the option expires or is exercised. While the Fund receives premiums for writing the call options, the price it realizes from the exercise of an option could be substantially below a stock’s current market price. Premiums from the Fund’s sale of call options typically will result in short-term capital gain taxes, making it ill suited for investors seeking a tax efficient investment. The use of derivatives by the Fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements. There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the Fund.
Before investing, consider the Fund’s investment objectives, risks, charges, and expenses. Contact 800 992-8151 for a prospectus or summary prospectus containing this and other information. Please, read it carefully. Aston Funds are distributed by Foreside Funds Distributors LLC.