The Investment Manager’s focus is on absolute rather than relative returns with an emphasis on the benefits of compounding over time. The Fund’s intent is to provide an investment strategy that offers an opportunity for positive absolute returns while reducing exposure to general equity market risk. In addition, through a macro overlay hedging strategy, the Fund intends to realize lower levels of volatility and a lower exposure to systematic equity market risk.
BofA Merrill Lynch 0-3 Month US Treasury Index: Is a subset of The Bank of America Merrill Lynch 0-1 Year US Treasury Index including all securities with a remaining term to final maturity less than 3 months.
The Fund seeks to achieve positive absolute return by trading and investing opportunistically in a broad range of markets, instruments and asset-classes. Investment opportunities and relevant themes are identified through a Quantamental approach that combines quantitative and fundamental research. Pursuant to this approach, macro-economic variables and securities fundamentals and characteristics are analyzed quantitatively alongside historical returns in order to derive the relative probabilities of future expected returns. In turn, these return expectations define both long and short investment opportunities and themes in the Fund. Lastly, at the portfolio management level, a top-down, quantitative analysis of the volatility and correlations of current investment opportunities and themes finalizes portfolio weights. The potential benefit of a Quantamental philosophy is that the subjectivity of investing is replaced by an objective, quantitative, and data-driven approach, and manager skill is focused on evaluating fundamental information in an objective, scientific manner.
Investment themes identified by the Investment Manager may be expressed through a variety of different investment approaches including, but not limited to, directional, relative value and event-driven investment strategies, as well as through a variety of different financial instruments. The Fund’s portfolio generally consists of a core long position in equity securities. However, as part of its hedging strategy, the Investment Manager may also take short positions to capitalize from overvalued securities or broad equity indices. Furthermore, the Investment Manager may, in its hedging strategy, trade and/or invest the Fund’s capital among other financial instruments, such as fixed income securities, commodity interests, currencies, futures, options and other derivatives in U.S. markets and, to a lesser extent, globally. The objective of the macro overlay hedging strategy is to reduce overall exposure to systematic equity market risk when equity markets appear overvalued or vulnerable, and to further reduce risk by trading or investing in uncorrelated assets that offer the benefit of diversification to the core long equity exposure in the Fund.
Although the Fund may employ a variety of opportunistic trading tools, the Investment Manager primarily seeks to identify investment opportunities in markets, sectors, issuers and instruments which the Investment Manager does not believe reflect their potential financial reward. Examples may include, but are not limited to, the following:
Companies whose shares do not reflect such fundamental indicators as ownership of new intellectual property, new management, positive fundamental condition, improved regulatory environment or positive changes in cost structure, implying the potential for an acceleration of earnings. Corporate restructuring which may have unrecognized positive implications for shareholder returns such as share buybacks, liquidation or the sale of corporate assets which may lead to higher returns and the potential of special cash distributions to shareholders. Either as a means of hedging risk or exploiting pricing inefficiencies identified by the Investment Manager, the Fund may trade exchange-traded futures in a variety of global equity indices, commodities, currencies and fixed-income products (including non-U.S. instruments).
The Investment Manager generally does not have predetermined maximum or expected holding periods for any particular position. The length of time for which a position is maintained varies significantly based on the Investment Manager’s subjective judgment of the appropriate point at which to liquidate a position so as to augment gains or reduce losses.
The Investment Manager anticipates that it will continue to develop and implement new trading and investment strategies as it seeks to identify investment opportunities for the Fund and implement changes in the Investment Manager’s macro-economic outlook and securities analysis.