Altrius Enhanced Income Fund (KEUIX) Second Quarter 2016 Commentary

Transcription

1 Altrius Enhanced Income Fund (KEUIX) Second Quarter 2016 Commentary Altrius Commentary and Strategy Outlook Started the process of equal weighting the funds exposure across all 97 individual companies in the middle of Q2, with investment discipline dependent on individual issue valuations and market depth Established new positions in energy related bonds during the first half of Q2, Increasing the funds allocation to the energy sector by over 5.0% from a 9.0% exposure as of March 31, 2016 to 14.8% as of June 30, 2016 The fund s exposure to the energy sector may increase marginally going forward, although we do not anticipate that the aggregate exposure to the energy sector will exceed a level of more than 18% anytime in the near future Oil prices around $45 per barrel should provide stability for our energy related issues, with many of our positions having already recovered to around, and in some cases exceeding par value Beginning in the first quarter of 2016 and continuing through the first half of Q2, we were able to find abundant opportunities in near investment grade issues, as well as strong single B credit rating, as rated by Moody s Rating Service, however spreads have continued to contract to near all-time lows over similar dated treasuries with aggregate high yield spreads currently around 650 bps (basis points or 6.50%) (570 bps ex-energy and metals) vs a long-term average of 590 bps Since inception we have stayed in issues maturing no further out than the year 2022 We anticipate calls on our current holdings to increase in both frequency and volume in the coming months due to the apparent persistence of low rates, which affords companies more time to refinance their current debt loads Sector diversification for the fund as a whole should remain largely unchanged Two Fish Commentary and Strategy Outlook Two Fish continues to sell put options on high quality equities in technology, health care and consumer staples sectors (Altrius is underweighted in these sectors) We are also finding attractive premium selling opportunities in asset classes such as treasury bonds, gold/silver bullion and derivative exchanges that have low or negative correlation to high yield bonds Current notional exposure is low due to overbought equity market conditions and lower volatility levels.

2 Holdings Summary As of June 30, 2016 the fund is currently invested in 101 unique CUSIPs (97 individual companies) with 17.5% notional options exposure. 65 out of 101 individual bond positions currently have aggregate market value bid prices above aggregate cost basis, indicating that these are currently in the positive performance range. Aggregate Statistics of Bond Portfolio (Not Cash Portion) Current Yield 7.32% Average coupon 7.13% Average Maturity 3.84 Years Average Duration Average Credit Rating 3.20 Years B2/ B+ (As Rated by Moody s Rating Service) Best Performing Positions Year-to-Date (Price appreciation relative to aggregate cost basis) 7.375% Elizabeth Arden 2021s +36.2% (acquired by Revlon in June 2016) 7.625% AK Steel 2020s +11.0% 8.750% Novelis +9.2% 6.500% Transocean +8.9% 5.875% Noble Energy +8.5% Worst Performing Positions Year-to-Date (Price decline relative to aggregate cost basis) 5.750% Revlon -3.5% 8.250% Navistar -2.1% 7.750% ERA Group -1.9% 7.875% Nationstar Mortgage -1.6% 6.875% Sears Roebuck -1.5% Top 10 Holdings Cash 13.20% Post Holdings 1.21% KB Home 1.16% Frontier Communications 1.14% The ADT Corporation 1.14% GAP 1.12% Petrobras 1.12% JC Penney 1.12% AngloGold Ashanti 1.12% Vale Overseas 1.11%

3 Sector Diversification 3.7% 3.4% 1.0% 4.8% 21.8% Consumer Discretionary Energy 6.3% Cash Financials 8.2% Industrials Materials Information Technology 8.5% 14.8% Telecommunications Services Health Care Consumer Staples 10.8% 13.2% Utilities Maturity Distribution Coupon Distribution 1.3% 2.3% 17.2% 30.9% 1 3 Years 3 5 Years 5 7 Years 53.5% 42.7% 3% -5% 5% - 7% 7% - 10% 10% 51.6% Options: Top Annualized Cash Flow Contributors since inception (2/3/16) Technology & Telecom 0.22% Treasury Bonds 0.18% Health Care 0.16% Agriculture 0.14% Industrials 0.12% Gold & Silver 0.10%

4 For the period ending 6/30/2016, the Fund s since inception (12/31/2015) cumulative return for Class I was 5.09%; other share class performance may vary. Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Returns for one year or less are cumulative. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. For the most recent month end performance, please call The Fund s total annual operating expense ratio for Class I is 1.50%. Shares redeemed within 30 days of purchase will be charged a 2.00% fee. Fund performance returns shown do not reflect this fee; if reflected, the returns would have been lower. Short-term performance is not a good indication of the Fund's future performance, and an investment should not be made based solely on returns. IMPORTANT DISCLOSURES AND RISKS: Before investing you should carefully consider the Kaizen Hedged Premium Spreads Fund investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by calling Please read the prospectus and summary prospectus carefully before you invest. An investment in the Fund is subject to risk, including the possible loss of principal. Fund risks include, but are not limited to, the following: High yield bonds are debt securities rated below investment grade ( junk bonds ), are speculative, involve greater risks of default, downgrade, or price declines and are more volatile and tend to be less liquid than investment-grade securities. Convertible securities are subject to market and interest rate risk and credit risk. When the market price of the equity security underlying a convertible security decreases the convertible security tends to trade on the basis of its yield and other fixed income characteristics, and is more susceptible to credit and interest rate risks. When the market price of such equity security rises, the convertible security tends to trade on the basis of its equity conversion features and be more exposed to market risk. The prices of foreign securities may be more volatile than the prices of securities of U.S. issuers because of economic and social conditions abroad, political developments, and changes in the regulatory environments of foreign countries. In addition, changes in exchange rates and interest rates may adversely affect the values of the Fund s foreign investments and foreign companies are generally subject to different legal and accounting standards than U.S. companies. Derivatives instruments involve inherent leverage, which may magnify the Fund s gains or losses. Adverse changes in the value or level of the underlying asset, reference rate or index can result in loss of an amount substantially greater than the amount invested in the derivative. In addition, the use of leverage may cause the Fund to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy obligations. The Fund must segregate liquid assets, or engage in other measures to cover open positions with respect to certain kinds of derivatives and short sales. The Fund may incur losses on derivatives and other leveraged investments (including the entire amount of the Fund s investment in such investments) even if they are covered. Purchasing and writing put and call options are highly specialized activities and entail greater than ordinary investment risks. The Fund may not fully benefit from or may lose money on an option if changes in its value do not correspond as anticipated to changes in the value of the underlying securities. If the Fund is not able to sell an option held in its portfolio, it would have to exercise the option to realize any profit and would incur transaction costs upon the purchase or sale of the underlying securities. Ownership of options involves the payment of premiums, which may adversely

5 affect the Fund s performance. To the extent that the Fund invests in over-the-counter options, the Fund may be exposed to counterparty risk. Liquidity risk-the Fund may not be able to sell some or all of the investments that it holds due to a lack of demand in the marketplace or other factors such as market turmoil, or if the Fund is forced to sell an illiquid asset to meet redemption requests or other cash needs it may only be able to sell those investments at a loss. The Fund is newly organized and has no operating history. As a result, prospective investors have no track record or history on which to base their investment decisions. Put is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. Strike Price is the price at which a specific options contract can be exercised. A put option is out-of-the-money if the stock price is above its strike price. The seller of an uncovered put option assumes the risk of a decrease in the market price of the underlying security below the strike price of the option plus the premium received. The buyer of a put option assumes the risk of losing its entire investment in the put option. Distributed by IMST Distributors, LLC.