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James Alpha Managed Risk Domestic Equity Fund August 2020 Commentary

While August has traditionally been a poor month in terms of performance, little has gone according to plan in this COVID tainted year. The month was confirmation of the old adage “don’t fight the FED”. The fund provided a 2.14% return vs 7.19% in the S&P 500.  The powerful risk-on environment dominated with hopes of a global synchronized recovery despite the lack of a new fiscal plan and flare ups of the virus in many spots across the country and the globe.  

The reacceleration of the “work from home” tech-oriented trade took precedence over efforts to rotate towards cyclical and value stocks as the growth definitions of equity far outperformed the Russell 1000 Value index (10.32% Russell Large Cap Growth vs 4.14% Russell Large Cap Value). The strength of equities also drove the level of volatility down from just under 25 to a low of 21 for the greater part of the month until the last few days when the VIX moved to the 26+ level. That upward equity trend and dropping volatility trend can present short term challenges to a managed risk strategy like ours but we believe our risk adjusted return (Sharpe ratio shown in table below) shows the benefits of our approach over market cycles. The volatility spike we saw as the month ended provides insight into the growing investor concern around equity valuation and election risk. We continue to believe that the various factors entrenched in the election, hopes for a fiscal plan, COVID recovery, and geopolitical arena make the fund a particularly important part of an investor’s asset allocation. As always, we remain focused on balancing upwards equity performance with systematic downside protection to provide excellent risk adjusted returns.    

JDIEX Performance Analytics

 JDIEXMorningstar Option Based CategoryICE BofAML US High Yield IndexS&P TR
3 Month Return6.61%6.08%6.84%15.48%
Year to Date Return5.09%1.11%0.75%9.74%
1 Year Return7.18%5.69%3.71%21.94%
3 Year Return(annualized)7.05%3.27%4.51%14.52%
3 Year Standard Deviation6.02%11.49%9.22%17.51%
3 Year Sharpe Ratio0.890.210.350.77
Since Inception (Annualized)4.60% 
Returns though 8-31-2020 Data provided by Morningstar. The current strategy was not fully implemented until November 7th, 2016.

All returns are quoted as annualized if over 1 year. Performance data quoted above is historical. Past performance does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that shares when redeemed may be worth more or less than their original cost. The Fund’s management has contractually waived a portion of its management fees until December 31, 2020 for I Shares. The performance shown reflects the waivers without which the performance would have been lower. Total annual operating expenses before the expense reduction/reimbursement are 1.37% for I Shares; total annual operating expenses after the expense reduction/reimbursement are 1.19% for I Shares. For more performance numbers current to the most recent month-end please call (888) 814-8180.

S&P TR Down MonthsJDIEXMorningstar Option Based CategoryICE BofAML US High Yield IndexS&P TR
18-Feb-0.85%-3.63%-0.93%-3.69%
18-Mar0.00%-1.22%-0.62%-2.54%
18-Oct-0.46%-4.30%-1.64%-6.84%
18-Dec-3.40%-5.59%-2.19%-9.03%
19-May-1.84%-3.34%-1.27%-6.35%
19-Aug0.86%-1.12%0.39%-1.58%
20-Jan0.38%-0.93%0.00%-0.04%
20-Feb-2.46%-4.97%-1.55%-8.23%
20-Mar-4.85%-8.00%-11.76%-12.35%
Total Drawdown-12.62%-33.10%-19.57%-50.65%
Downside Capture24.92%65.35%38.64%100.00%
Returns through 8-31-2020 data provided by Morningstar

Definitions

Bloomberg Barclays US Corporate High Yield Index: is composed of fixed-rate, publicly issued, non- investment-grade debt.

Capture Ratios: A statistical measure of an investment manager’s performance in up or down markets. The capture ratio is used to evaluate how well an investment manager performed relative to their index during periods when that index has risen or fallen. The ratio is calculated by dividing the manager’s returns by the returns of the index and multiplying that factor by 100. In an up market, the upside capture compares the manager’s actual performance relative to the index performance, while in a down market, the downside capture compares the manager’s performance to the falling market.

Drawdown: The peak-to-trough decline during a specific recorded period of an investment, fund or commodity.

Gross Domestic Product (GDP): The monetary value of all the finished goods and services produced within a country’s borders in a specific time period.

S&P 500 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 the large cap universe.

Sharpe Ratio: A measure for calculating risk-adjusted return, it is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

Sortino Ratio: Measures the risk-adjusted return of an investment asset, portfolio, or strategy.

Standard Deviation: measures historic volatility and is the measure of the dispersion of a set of data from its mean. The more volatile the data, the higher the deviation.

ABOUT EAB INVESTMENT GROUP, LLC

EAB Investment Group, LLC specializes in risk mitigation strategies and works with hedge funds, family offices, high-net-worth individuals, investment companies and other advisors. EAB Investment Group uses equity and index option strategies based on a proprietary process with the goal to reduce portfolio risk and increase the probability of success. A deep understanding of options pricing enables EAB Investment Group to manage carry and attempt to mitigate costs over time, and potentially optimize monetization.

JDIEX Q2 Performance

As of 6/30/2020YTD1-Year3-YearSince Inception 8/3/2015
JDIEX0.48%4.35%5.80%4.25%
S&P 500-3.08%7.51%10.73%10.45%
Returns through 6-30-2020 data provided by Morningstar

All returns are quoted as annualized if over 1 year. Performance data quoted above is historical. Past performance does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that shares when redeemed may be worth more or less than their original cost. The Fund’s management has contractually waived a portion of its management fees until December 31, 2020 for I Shares. The performance shown reflects the waivers without which the performance would have been lower. Total annual operating expenses before the expense reduction/reimbursement are 1.37% for I Shares; total annual operating expenses after the expense reduction/reimbursement are 1.19% for I Shares. For more performance numbers current to the most recent month-end please call (888) 814-8180.

RISKS AND DISCLOSURES

The portfolio will borrow money for investment purposes. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk while increasing investment opportunity. Derivatives may be volatile, and some derivatives have the potential for loss that is greater than the Portfolio’s initial investment. If the Portfolio sells a put option, there is risk that the Portfolio may be required to buy the underlying investment at a disadvantageous price. If the Portfolio purchases a put option or call option, there is risk that the price of the underlying investment will move in a direction that causes the option to expire worthless. The Portfolio’s ability to achieve its investment objective may be affected by the risk’s attendant to any investment in equity securities.

The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in more mature economic structures and less stable political systems than those developed countries. Shares of ETFs have many of the same risks as direct investments in common stocks or bonds. In addition, their market value is expected to rise and fall as the value of the underlying index or bond rises and falls. It is possible that the hedging strategy could result in losses and/or expenses that are greater than if the Portfolio did not include the hedging strategy. The use of leverage by the Fund or an Underlying Fund, such as borrowing money to purchase securities or the use of derivatives, will indirectly cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. Because a large percentage of the Portfolio’s assets may be invested in a limited number of issuers, a change in the value of one or a few issuers’ securities will affect the value of the Portfolio more than would occur in a diversified fund.

Past performance is not a guarantee or a reliable indicator of future results. Investors cannot directly invest in an index and unmanaged index returns do not reflect any fees, expenses, or sales charges. As with any investment, there are risks. There is no assurance that the portfolio will achieve its investment objective. Mutual funds involve risk, including possible loss of principal. Certain members of James Alpha Advisors, LLC are also registered representatives of FDX Capital, LLC, member FINRA/SIPC. Saratoga Capital Management, LLC, FDX Capital, LLC and EAB Investment Group, LLC are not affiliated with Northern Lights Distributors. The Saratoga Advantage Trust’s Funds are distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. 11/11 © Saratoga Capital Management, LLC; All Rights Reserved.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other information is contained in the Fund’s prospectus, which can be obtained by calling 888.814.8180 and should be read carefully before investing. Additional Fund literature may be obtained by visiting www.SaratogaCap.com or www.JamesAlphaAdvisors.com.


7186-NLD-9/11/2020

THE OPINIONS STATED HEREIN ARE THAT OF THE AUTHOR AND ARE NOT REPRESENTATIVE OF THE COMPANY. NOTHING WRITTEN IN THIS COMMENTARY OR WHITE PAPER SHOULD BE CONSTRUED AS FACT, PREDICTION OF FUTURE PERFORMANCE OR RESULTS, OR A SOLICITATION TO INVEST IN ANY SECURITY.