The month of August was another solid month for stocks, which feels like a comment we have been making for many months now. We wrote about how investor sentiment seemed overly complacent, put/call ratios were near record lows, and speculation in cloud stocks are off the charts. All this lined up fairly well for the market to experience a normal pullback, but instead the opposite occurred. The market climbed higher in August with only a few down days. Overvalued stocks became more overvalued, and demonstrated the difficulty in knowing when a market driven by momentum might run out of steam.
There were plenty of macro worries in the headlines. The second round stimulus bill was never passed, the extra unemployment insurance payments were set to sunset, and the fragile economic reopening still left many cities and businesses looking like mere shadows of their former selves. Chalk this up to the classic adage that ‘a bull market loves to climb a wall of worry’. I think most would agree that this has to be the biggest “wall of worry” we have ever seen.
Our hedge model was basically pinned at fully net long market exposure during the month. There was plenty of volatility around earnings season, but most attempts to take profits on stocks that looked like their run-ups were getting excessive only made you look foolish in hindsight. And if you didn’t own Tesla, what were you thinking?? For those of us that were trading during the 1998-2000 period, this type of price action has an eerily similarity to it.
The hardest question is, are we in the June 1999 period, or is it already March 2000?
Leading stocks in the portfolio were most FAANG-like stocks, surprisingly with some consumer retail names showing up on the leaderboard as well. Laggards were mostly one-off earnings related selloffs due to not meeting lofty investor expectations. Earnings season is always a bit of a coin-toss, so we try to increase focus on managing risk. Which can make it difficult to outpace a runaway stock market, at least in the short-term.
Although growth stocks lagged their value counterparts for the first half of the month, momentum came roaring back in the back half of August. As such, for the month as a whole growth stocks again trounced value. Is this trend getting long in the tooth? Probably. But we don’t want to sound like a broken record.
The ACM Dynamic Opportunity Fund (ADOIX) performed well in August, outperforming its two closest benchmarks. The Fund finished August a full +1706 bps ahead of its benchmark (ytd). The Fund also continues to outpace its peer group ytd by a wide margin.
Thank you for your continued support. Stay safe out there.
Jordan L. Kahn, CFA
Chief Investment Officer
Sources: Standard & Poor’s, Stockcharts.com, Morningstar
Defined Terms: S&P 500 Index- The S&P 500 index is an unmanaged composite of large capitalization companies. This index is widely used by professional investors as a performance benchmark for large-cap stocks. HFRX Equity Hedge Index– tracks strategies that maintain positions both long and short in primarily equity and equity driven securities. Morningstar Long/Short Equity Category- A composite of returns produced by Morningstar which can be used to compare the returns of other mutual funds in the same category. Long– the holder of the position owns the security and will profit if the price of the security goes up. Short- Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit. Derivative hedge – transaction that limits investment risk with the use of derivatives such as option contracts.
Investors are not able to invest directly in the indices referenced and unmanaged index returns do not reflect any fees, expenses or sales charges. For current performance information, please visit our performance page: http://acm-funds.com/dynamic-fund-performance/
There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses.
ETF’s are subject to specific risks, depending on the nature of the underlying strategy of the fund. These risks could include liquidity risk, sector risk, as well as risks associated with fixed income securities, real estate investments, and commodities, to name a few. Investments in foreign securities could subject the Fund to greater risks including, currency fluctuation, economic conditions, and different governmental and accounting standards.
Investors should carefully consider the investment objectives, risks, charges and expenses of the ACM Dynamic Opportunity Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 1-844- 798-3833. The prospectus should be read carefully before investing. The ACM Dynamic Opportunity Fund is distributed by Northern Lights Distributors, LLC, member.”http://www.finra.org/” FINRA. “http://www.sipc.org/” SIPC. Northern Lights Distributors, LLC and Ascendant Capital Management, LLC are not affiliated.
August 2020 Fact Sheet
We strive to help our investors participate in the gains available from financial markets, while mitigating the downside risk.
The ACM Dynamic Opportunity Fund is designed as a core investment for investors seeking long term capital appreciation with a short-term focus on capital preservation. The fund employs a dynamic strategy, which aims to actively participate during a rising market environment and mitigate downside risk when markets experience downturns.
|PERFORMANCE||As of 8/31/2020|
|1-mth||3-mth||YTD||1 Yr*||3 Yr*||5 Yr*||Since Inception*|
|HFRX Eq Hedge||2.71%||5.85%||-2.97%||-2.11%||-0.12%||0.27%||0.33%|
|Morningstar L/S Category||3.12%||6.92%||1.48%||-0.87%||2.17%||2.33%||1.59%|
*As of 6/30/20
You should be aware that the Fund’s past performance (before and after taxes) may not be an indication of how the Fund will perform in the future. Although Class A shares would have similar annual returns to Class I shares because the classes are invested in the same portfolio of securities, the returns for Class A shares are different from Class I shares because Class A shares have different expenses than Class I shares. Updated performance information is available at no cost by visiting www.ACM-Funds.com or by calling 1-844-798-3833. Actual Total Annual Fund Operating Expenses of 1.95% for Class A and 1.70% for Class I from the prospectus. The Adviser has contractually agreed to reduce its fees and reimburse expenses of the Fund, at least until April 30, 2021, to ensure that the net annual fund operating expenses will not exceed 2.40% for Class A shares and 2.15% for Class I shares. These fee waivers and expense reimbursements are subject to possible recoupment from each Fund within three years after the fees have been waived or reimbursed. Maximum sales charge for Class A shares is 5.75%. Please review the fund’s prospectus for more information regarding the fund’s fees and expenses.
As of 8/31/2020
There is no assurance that the Fund will achieve its investment objectives.
|Dynamic Opportunity Fund|
|Spotify Technology SA||3.22%|
|LGI Homes Inc||2.91%|
|O’Reilly Automotive Inc||2.71%|
|UnitedHealth Group Inc||2.57%|
|Fund Characteristics *|
|Avg. Market Cap||$54,405M|
|Gross Long Exposure||91.6%|
|Gross Short Exposure||-2.4%|
|Net Market Exposure||89.2%|
|Beta Adj. Exposure||97.0%|
|HFRX Eq Hedge||-1.61%||0.10%||9.98%||-9.42%||10.71%|
|Morningstar L/S Category||-2.20%||2.34%||11.18%||-6.73%||11.90%|
*Inception Date 1/20/2015
Investors should carefully consider the investment objectives, risks, charges and expenses of the ACM Dynamic Opportunity Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 1-844-798-3833. The prospectus should be read carefully before investing. The ACM Dynamic Opportunity Fund is distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. Northern Lights Distributors, LLC and Ascendant Capital Management, LLC are not affiliated.
Mutual Funds involve risk including possible loss of principal. Adverse changes in currency exchange rates may erode or reverse any potential gains from the Fund’s investments. ETF’s are subject to specific risks, depending on the nature of the underlying strategy of the fund. These risks could include liquidity risk, sector risk, as well as risks associated with fixed income securities, real estate investments, and commodities, to name a few. Investments in underlying funds that own small and mid-capitalization companies may be more vulnerable than larger, more established organizations. Derivative instruments involve risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Investments in foreign securities could subject the Fund to greater risks including currency fluctuation, economic conditions, and different governmental and accounting standards. In addition to the risks generally associated with investing in securities of foreign companies, countries with emerging markets also may have relatively unstable governments, social and legal systems that do not protect shareholders, economies based on only a few industries, and securities markets that trade a small number of issues.
Investors bear the risk that the Fund may not be able to implement its investment strategies or attract sufficient assets. Purchased put options may decline in value or expire worthless and may have imperfect correlation to the value of the Fund’s portfolio securities. Written call and put options may limit the Fund’s participation in equity market gains and may amplify losses in market declines. The Fund’s losses are potentially large in a written put or call transaction. If unhedged, written calls expose the Fund to potentially unlimited losses. The Fund will incur a loss as a result of a short position if the price of the short position instrument increases in value between the date of the short position sale and the date on which an offsetting position is purchased. Short positions may be considered speculative transactions and involve special risks, including greater reliance on the ability to accurately anticipate the future value of a security or instrument. The Fund’s losses are potentially large in a short position transaction.
Price to Earnings (P/E) is a valuation ratio of a company’s current share price compared to its per share earnings. Gross Long and Short Exposure is the percentage in securities that are expected to rise and decline, respectively. Beta is a measure of systemic risk. Standard Deviation is a statistical measurement. It sheds light on the historical volatility of that investment. The greater the standard deviation of a security, the greater the variance between each price and the mean, indicating a larger price range. Treynor ratio – A performance metric for determining how much excess return was generated for each unit of risk taken on by a portfolio. HFRX Equity Hedge Index – tracks strategies that maintain positions both long and short in primarily equity and equity driven securities. S&P 500 Index – tracks 500 individual stocks chosen for market size, liquidity and industry grouping, among other factors.
Investors are not able to invest directly in the indices referenced in this illustration and unmanaged index returns do not reflect any fees, expenses or sales charges.