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Managed Risk Domestic Equity Fund September Market and Performance Commentary

Economic concerns with the anticipated expiration of the Cares Act and profit taking in the tech / work from home sectors broke the 5- month positive streak of the S&P 500 with a -3.8% loss in September. The James Alpha Managed Risk Domestic Equity Fund distinguished itself, providing a 0.18% return during the same period as its systematic hedge positioning captured the multiple moments of equity decline during the month.  For the third quarter, the fund provided a 4.41% return versus 8.93% in the S&P 500. YTD, the fund returned 4.90% versus 5.57% in the S&P 500. With our volatility at roughly a third of the S&P, the risk adjusted benefits of our approach became manifestly clear for anyone concerned about maximizing return while trying to minimize downside risk.  However, there is no assurance that past performance will guarantee future results. Please see the tables below for an understanding of the fund’s performance and analytics.

 JDIEXMorningstar Option Based CategoryICE BofAML US High Yield IndexS&P TR
3-Month Return4.41%3.95%4.71%8.93%
Year to Date Return4.90%0.36%-0.30%5.57%
1-Year Return6.38%3.90%2.30%15.15%
3-Year Return (Annualized)6.85%2.91%3.83%12.28%
3-Year Standard Deviation5.99%11.14%9.26%17.74%
3-Year Sharpe Ratio0.870.160.280.65
Since Inception Return (Annualized)4.91%

Returns through 9/30/2020 Data provided by Morningstar Direct. The current strategy was fully implemented on 11/7/2016.

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-Feb-2.46%-4.97%-1.55%-8.23%
20-Mar-4.85%-8.00%-11.77%-12.35%
20-Sep0.18%-1.25%-1.04%-3.80%
Total Drawdown-12.82%-33.42%-20.62%-54.41%
Down Capture23.56%61.42%37.90%100%

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.

Returns through 9-30-2020 Data provided by Morningstar Direct.

The recent acceleration of new COVID-19 cases, the likelihood the presidential election results will drag on, and concerns over a renewed fiscal plan all create uncertainties that increase the importance of managing portfolio risk. We have found that the defensive approach we take strives to drop correlation to equities as significant market declines occur. Recently we have begun to discuss with investors that asset allocators are growing concerned about the role of fixed income and credit in portfolios in general. With interest rates at multi-year lows and likely to remain that way for years, we have commented that the yield seeking move out the credit curve has increased most investor portfolios sensitivity (correlation) to equities in a somewhat stealthy manner. It is also clear to us that unless US Treasuries move into negative interest rate territory; the diversification or offset value of US treasuries and investment grade corporate bonds may be impaired.

As such we continue to see the value of using a more robust allocation to the James Alpha Managed Risk Domestic Equity Fund to potentially offset the growing equity correlation concerns around high valuations, economic growth uncertainties, and ultra-low interest rates. Interestingly, the election concerns have shown up differently in the volatility markets which have performed somewhat more sluggishly than investors would have expected. Despite volatility being somewhat sticky, the fund benefitted by being able to sell the higher implied volatility call premium necessary to maintain its positive carry and targeted performance signature. We think this higher than usual volatility environment could remain in place for the next quarter, working to the benefit of the fund. 

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.

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.

As of 9/30/2020YTD1-Year3-Year5-YearSince Inception 8/3/2015
JDIEX4.90%6.38%6.85%6.26%4.91%
S&P 5005.57%15.15%12.28%14.15%11.76%

Source: Morningstar Direct. Total return for all periods less than one year is an aggregate number (not annualized and is based on the change in net asset value plus the reinvestment of all income dividends and capital gains distributions. 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. Investors cannot invest directly into an index. The Fund’s management has contractually waived a portion of its management fees until December 31, 2020 for I, A, and C 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 2.08% for I Shares, 2.31% for A Shares, and 3.05% for C Shares; total annual operating expenses after the expense reduction/reimbursement are 2.11% for I Shares, 1.92% for A Shares, and 3.05% for C Shares. The Fund’s investment adviser has contractually agreed to reduce and/or absorb expenses until at least December 31, 2020 for I, A, and C Shares, to ensure that net annual operating expenses of the fund will not exceed 1.79% for I Shares, 1.99% for A Shares, and 3.00% for C Shares, subject to possible recoupment from the Fund in future years. 5.75% is the maximum sales charge on purchases of A shares.

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.


7262-NLD-10/8/2020