QUARTERLY FUND REVIEW | As of March 31, 2025
By Shawn Gibson on Apr 28, 2025
FUND OVERVIEWS
The Overlay Shares suite of ETFs seeks to provide incremental yield on top of low-cost market beta ETFs by utilizing a highly risk-controlled put spread writing strategy ("the Overlay Strategy") on the S&P 500 Index. If successful, the ETFs have the ability to provide higher yield and higher total return than holding the underlying ETFs alone. The Overlay Strategy is applied and managed the same way in six of the seven of the Overlay Shares funds:
FUND NAME | BETA EXPOSURE | INCEPTION DATE |
Overlay Shares Large Cap Equity ETF (OVL) | US Large Cap Equity | 09/30/2019 |
Overlay Shares Small Cap Equity ETF (OVS) | US Small Cap Equity | 09/30/2019 |
Overlay Shares Foreign Equity ETF (OVF) | International Equity | 09/30/2019 |
Overlay Shares Core Bond ETF (OVB) | Broad Investment Grade Bond | 09/30/2019 |
Overlay Shares Municipal Bond ETF (OVM) | Municipal Bond | 09/30/2019 |
Overlay Shares Short Term Bond ETF (OVT) | Short Term Corporate Bond | 01/14/2021 |
Overlay Shares Hedged Large Cap Equity ETF (OVLH) | Hedged US Large Cap Equity | 01/14/2021 |
The Overlay Shares Hedged Large Cap ETF (OVLH) maintains laddered downside hedges to protect the portfolio against significant market drawdowns.
PERFORMANCE OVERVIEW
The U.S. Equity Markets finished a strong 2024 on a down note as concerns about inflation and economic growth began to reignite. In the 1st quarter, these concerns were further fanned by the possibility of U.S.-imposed tariffs setting off a full-blown trade war that could cause more inflation and economic contraction. Suddenly, the risk of stagflation became a real concern. The selling in equities began in earnest on 2/19/25 with the S&P 500 Index selling off 8.66% from the closing high to end the quarter. The final result for the quarter was that the Index lost 4.27%. Meanwhile, after years of underperformance, non-US equities finally began to outperform. The MSCI All Country World Index ex US was actually up 5.23% for the quarter as investors look for better value outside of large tech and fully priced US stocks. The bond markets provided a ballast for investors as a flight to safety sent bonds higher and interest rates lower. The Bloomberg US Aggregate Bond Index finished the quarter up 2.78%.
The Overlay Strategy started the year strong as volatility remained subdued, but the volatile 2nd half of the quarter resulted in the Strategy finishing down approximately 1.32%. This loss directly contributed to the underperformance of the six funds that utilize the Strategy. The Overlay Shares Hedged Large Cap (OVLH) does not utilize the Overlay Strategy and was able to benefit from an increase in volatility, which caused the value of the portfolio hedges to rise in value. As a result, the Fund finished down only 2.65% vs. -4.27% for the S&P 500 Index
FUND PERFORMANCE
Q1 25 | YTD | 1 YEAR | 5 YEARS | Inception to Date | |
OVL NAV Returns | -5.94% | -5.94% | 6.39% | 19.20% | 14.29% |
OVL Market Price Returns | -6.11% | -6.11% | 6.09% | 19.22% | 14.29% |
S&P 500 Total Return Index | -4.27% | -4.27% | 8.25% | 18.59% | 14.01% |
Gross Expense Ratio | 0.79% |
OVS NAV Returns | -10.42% | -10.42% | -5.00% | 15.67% | 7.54% |
OVS Market Price Returns | -10.30% | -10.30% | -4.98% | 15.75% | 7.57% |
S&P 600 Total Return Index | -8.93% | -8.93% | -3.38% | 15.09% | 7.28% |
Gross Expense Ratio | 0.83% |
OVF NAV Returns | 5.21% | 5.21% | 4.36% | 8.13% | 4.24% |
OVF Market Price Returns | 5.33% | 5.33% | 4.41% | 8.28% | 4.26% |
MSCI All Country World ex USA Index | 5.23% | 5.23% | 6.09% | 10.92% | 10.92% |
Gross Expense Ratio | 0.83% |
OVB NAV Returns | 1.31% | 1.31% | 3.51% | 0.46% | 0.80% |
OVB Market Price Returns | 1.33% | 1.33% | 3.75% | 0.44% | 0.82% |
Bloomberg US Aggregate Bond Index | 2.78% | 2.78% | 4.88% | -0.40% | 0.24% |
Gross Expense Ratio | 0.79% |
OVM NAV Returns | -2.01% | -2.01% | -0.44% | 1.85% | 1.50% |
OVM Market Price Returns | -1.97% | -1.97% | -0.43% | 1.85% | 1.54% |
Bloomberg Municipal Bond Index | -0.22% | -0.22% | 1.22% | 1.07% | 0.99% |
Gross Expense Ratio | 0.83% |
OVT NAV Returns | 0.52% | 0.52% | 5.03% | N/A | 1.68% |
OVT Market Price Returns | 0.54% | 0.54% | 5.23% | N/A | 1.69% |
Bloomberg US Corporate 1-5 Years TR Index | 1.96% | 1.96% | 6.37% | N/A | 1.59% |
Gross Expense Ratio | 0.80% |
OVLH NAV Returns | -2.65% | -2.65% | 6.60% | N/A | 7.59% |
OVLH Market Price Returns | -2.70% | -2.70% | 6.59% | N/A | 7.57% |
S&P 500 Total Return Index | -4.27% | -4.27% | 8.25% | N/A | 11.40% |
Gross Expense Ratio | 0.85% |
Source: U.S. Bank & Liquid Strategies.
*Inception for OVL, OVS, OVF, OVB, OVM is 09/30/2019. Inception for OVLH and OVT is 01/14/2021.
Performance data quoted represents past performance and is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For the most recent month-end performance, please call 1-866-704-OVLS.
Overlay Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Total Returns are calculated using the daily 4:00pm EST net asset value (NAV). Market price returns reflect the midpoint of the bid/ask spread as of the close of trading on the exchange where Fund shares are listed. Market price returns do not represent the returns you would receive if you traded shares at other times.
MARKET OVERVIEW
Given the significant rise in volatility since the end of the quarter, we wanted to expand our standard quarterly market overview to include some viewpoints on the current situation. As of the close of the market on 4/10/25, here is where things stand:
The S&P 500 Index is now down 14.32% from the 2/19/25 peak on a closing basis after recovering 460 basis points off the local bottom.
The CBOE Volatility Index (the “VIX”) exploded higher, peaking at 60 compared to a long-term average of close to 20
The long-term trend of volatility has appeared to turn higher, setting the stage for a potential lingering high volatility regime
During this period of extreme volatility, the S&P 500 Index was down more than 10.5% in 2 days for the 12th time in history!
It also gave us the 8th best day ever for the S&P 500 Index!
Source: Saut Strategy
Most volatility metrics and sentiment readings reached near all-time highs
The current environment comes with a number of different challenges at once:
- The daily markets are EXTREMELY news driven and can move the markets in waves as they happen. For example, on 4/7/25 the market rallied over 8% in roughly 30 minutes on a report that tariffs would be suspended for 90 day
- The “Fed Put” may not exist now. Given the lingering uncertainty around inflation, particularly with the tariff uncertainty, the FOMC may be hard-pressed to take measures to stimulate the economy out of fear of fanning inflation.
- A souring US/China relationship could have a number of spillover effects that could slow global growth.
- All of this uncertainty makes it difficult for CEOs to commit to investing in growing their companies as future policy changes could impact the ROI of such investments.
Despite all of this worry, it is important for investors to step back and be mindful that while this current environment is different from other previous stress periods in terms of the specific drivers, the markets have worked through these periods and eventually thrived. Just in our 28 years in the market, we have witnessed and managed risk through:
1997 Asian Contagion
1998 Russian Ruble Crisis
1999 Y2K panic
2000 Dot Com Bubble bust
2001 9/11
2003 Iraq War
2008 GFC
2010 Europe Sovereign Debt Crisis
2010 Flash Crash
2011 US Debt Downgrade
2013 Taper Tantrum
2015 August growth scare
2016 Trump election
2018 “Volmageddon”
2020 COVID pandemic
2022 Bear Market
2025 Tariff Tantrum
One of the biggest mistakes that investors make is getting out of the markets at the wrong time during periods of high stress. We can help with solutions that can help you stay invested in the market during this turbulence. As always, we are happy to not only do calls and meetings to discuss the performance and outlook for the Overlay, but we are also happy to serve as a resource for general questions on market volatility.
We appreciate your continued support and interest.
Shawn Gibson, Founding Member
Adam Stewart, CFA, Portfolio Manager
OVERLAY SHARES ETFS DISCLOSURES
Performance of less than one year is cumulative. You cannot invest directly in an index.
Overlay Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Total Returns are calculated using the daily 4:00pm EST net asset value (NAV). Market price returns reflect the midpoint of the bid/ask spread as of the close of trading on the exchange where Fund shares are listed. Market price returns do not represent the returns you would receive if you traded shares at other times.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other important information about the Fund, please visit the Documents section of this website or call (866) 704-OVLS. Read the prospectus carefully before investing.
Shareholder Services: 1-866-704-OVLS
Investment Professionals: 770-350-8700 or info@overlayshares.com
Distributed by Foreside Fund Services, LLC, which is not affiliated with the Adviser.
RISK FACTORS
The Funds invest in options that derive their performance from the performance of the S&P 500 Index. Selling (writing) and buying options are speculative activities and entail greater than ordinary investment risks. The Funds' use of put options can lead to losses because of adverse movements in the price or value of the underlying asset, which may be magnified by certain features of the options. When selling a put option, the Funds will receive a premium; however, this premium may not be enough to offset a loss incurred by the Funds if the price of the underlying asset is below the strike price by an amount equal to or greater than the premium. Purchased put options may expire worthless and the Funds would lose the premiums paid for the options. The Funds may lose significantly more than the premiums they receive in highly volatile market conditions.
The Funds will invest in short term put options which are financial derivatives that give buyers the right, but not the obligation, to sell (put) an underlying asset at an agreed-upon price and date. The Funds' use of options may reduce the Funds' ability to profit from increases in the value of the underlying asset. The Funds could experience a loss or increased volatility if the derivatives do not perform as anticipated or are not correlated with the performance of their underlying asset or if the Funds are unable to purchase or liquidate a position.
The Funds were recently organized and have no operating history. As a result, investors have a limited track record on which to base their investment decision. Investments involve risk including the possible loss of principal.
S&P 500 Total Return Index - An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of large cap stocks. All cash distributions (e.g. dividends and income) are reinvested. Used as a proxy for "Stocks" above.
Barclay’s U.S. Aggregate Bond Index - A broad-based index of bond securities used to represent investment-grade bonds traded in the U.S. The index was formerly known as the “Lehman Aggregate Bond Index”. Used as a proxy for "Bonds" above.
CBOE Volatility Index ("VIX") - An index sponsored by the Chicago Board of Options Exchange (CBOE) that shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of various option expirations and various strike prices of S&P 500 index options.
Correlation (R2) - A statistical measure of how two financial instruments (e.g. securities, indices, etc.) move in relation to each other. A correlation of +1 implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, the closer correlation is to 0, the less the movements of two securities are related to one another.
Beta - A measure of the portfolio’s sensitivity to changes in the benchmark. A beta of 1 indicates the portfolio has historically moved with the benchmark. A portfolio beta greater than 1 indicates the portfolio has been more volatile than the benchmark and a portfolio beta less than one indicates the portfolio has been less volatile than the benchmark. Beta in this presentation is calculated using monthly historical returns.
Sharpe Ratio - A measure for calculating risk-adjusted return. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated. Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return. For Sharpe Ratio calculations in this presentation, the “risk free rate” is represented by the annualized monthly returns of the 3 Month US T-Bill.
Max Drawdown - A measure of the largest single drop from peak to trough based on monthly portfolio returns
HFRX Absolute Return Index - A stock index designed to measure absolute returns. The absolute return index is actually a composite index made up of five other indexes. This index is used to compare the absolute returns posted by the hedge fund market as a whole against individual hedge funds.
Standard Deviation - A measure of the dispersion of a set of data from its mean.
Bloomberg US Corporate 1-5 Years TR Index - The Bloomberg US Corporate Bond 1-5 Year Index measures the investment grade, fixed-rate, taxable corporate bond market with 1-5 year maturities.
Bloomberg Municipal Bond Index - The Bloomberg Municipal Index measures the performance of the Bloomberg U.S. Municipal bond market, which covers the USD- denominated Long-Term tax-exempt bond market with four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.
Bloomberg US Aggregate Bond Index - The Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollardenominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, fixed rate agency MBS, ABS and CMBS (agency and non-agency).
MSCI All Country World ex USA Index - The MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 24 Emerging Markets (EM) countries*.
S&P 600 Total Return Index - The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.
Alpha - The excess return of an investment relative to the return of a benchmark index. Alpha may be positive or negative and is the result of active investing.
Basis point - A basis point is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%. In decimal form, one basis point appears as 0.0001 (0.01/100). Basis points (BPS) are used to show the change in the value or rate of a financial instrument, such as 1% change equals a change of 100 basis points and 0.01% change equals one basis point.
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