The Fund, a diversified investment company, pursues its investment objective by employing a discretionary trading strategy which attempts to tactically allocate exposure levels in the U.S. stock market. Specifically, the Advisor invests the portfolio in long and short equity stock index futures, primarily on the S&P 500® Index; however, other equity indices may be invested in from time to time. The Fund’s investment methodology, based on the portfolio manager’s proprietary quantitative indicators and models, begins with a top-down analysis of a broad array of fundamental and statistical data relating to the stock market.
This data can be classified into five distinct categories:
- Market valuation: Whether the market is over-valued, under-valued or neutral
- Investor sentiment: Investor expectations about the market, used as a contrary measure
- Market intervals: Market momentum, market structure and seasonal factors
- Monetary environment: Interest rates and macroeconomic circumstances
- Macro factors: External influences that may impact U.S. stock indexes
An assessment of these categories determines the amount of long or short equity allocation exposure in the Fund. This equity exposure generally ranges from 30% short to 130% long. The Fund implements short positions by using futures, or through short sales of any instrument that the Fund may purchase for investment. For example, the Fund may enter into a futures contract pursuant to which it agrees to sell an asset (that it does not currently own) at a specified price at a specified point in the future. This gives the Fund a short position with respect to that asset.
The Fund may use leverage through derivatives. As a result, the sum of the Fund’s investment exposures may at times exceed the amount of assets invested in the Fund, although these exposures may vary over time.
The Fund invests only in stock index futures in pursuing its investment objective. The risk profile of stock index futures is controlled and monitored through the oversight and regulations of the exchanges. The Fund is in compliance with the requirements of the exchanges and regulatory agencies in regard to its derivatives trading.