2nd Quarter 2012
The Fund did not perform as well as we would have expected during a quarter in which the market declined significantly amid much volatility. The problem was that the portfolio’s put options failed to increase significantly when the market declined because the implied volatility (the amount of expected volatility priced into the option) remained extremely low. Thus, the use of puts as a hedge ended up being a cost without any payoff. Still, it remains our strategy to continue to hold these put options for as long as the CBOE Market Volitility Index (“VIX”) remains low.
The portfolio’s underlying equity investments performed reasonably well during the quarter given the relatively defensive nature of the holdings. Overweight positions in Utilities, Healthcare, and Consumer Staples, with many companies paying above-average dividends, aided relative returns.
Senior Portfolio Manager
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.