COMMENTARY: Managed Futures Strategy Fund July 2018
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Commentary in PDF format.


HIGHLIGHTS

    Contributors
  • Equities: Long Russell 2000 Index Mini
  • Fixed Income: Long 10-Year Japanese Government Bonds
  • Currencies: Short Brazilian Real/ U.S. Dollar
  • Commodities: Long Cotton
    Detractors
  • Equities: Long OMXS30
  • Fixed Income: 10 year Italian Government Bond
  • Currencies: Long British pound versus Australian dollar
  • Commodities: Long Cocoa

Past Commentaries

July 2018

June 2018

May 2018

April 2018

March 2018

February 2018

January 2018


RECAPS

The fund returned a gain of 0.74% in July due to gains in commodities and equities.

Global equity indexes finished July higher with only a few exceptions. In the U.S., over 80% of companies beat analysts’ expectations for the second quarter. This caused U.S. equities to end the month nearly 4% higher. Elsewhere, China finished July nearly 3% lower due to ongoing trade tensions.

Commodity returns were positive for the month as gains in precious metals, meats and softs more than offset losses in grains and energies. Precious metals profited from general weakness in the sector, as gold made new twelve-month lows following Federal Reserve Chairman Powell’s testimony resulting in a stronger U.S. dollar. On the other hand, the energy sector posted losses due to oversupply concerns stemming from a surge in US oil stocks and concerns that Saudi Arabia and Russia may increase production.

Yields rallied in July and ultimately settled towards the high end of the range with the U.S 10-year yield trading just under 3% at month end. Headlines about President Trump’s dissatisfaction with higher rates caused the U.S. dollar to sell off somewhat mid-month. However, Chair Powell’s view that the best path to maintain a strong economy, with inflation near the Fed’s target, and near full employment is to gradually raise rates. This caused the US dollar to rebound and yields to settle close to 3%.

Performance (as of 7/31/2018)
*INCEPTION DATE: 6/27/12 **INCEPTION DATE: 3/22/13
The Total Annual Fund Operating Expenses for the Longboard Managed Futures Strategy Fund class A and I are 3.13% and 2.87% respectively. The maximum sales charge for Class A (Max Load) shares is 5.75%. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. For performance information current to the most recent month-end, please call toll-free 855-294-7540 or visit our website, www.longboardfunds.com. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.

OUTLOOK

July was the first month where trade tensions moved from threats to actions with the first round of tariffs being implemented. The long-term impact will take many quarters to be seen, but the U.S. Federal Reserve does not seem overwhelmingly concerned. Their commitment to a well telegraphed and consistent gradual tightening has allowed markets to remain calm for the time being. More so, the equity markets continue to look resilient and buoyed by positive earnings.

However, strength in the U.S. dollar leads to more questions than answers and may prove to be a headwind. The relative outperformance of the greenback is likely to have a tightening effect on financial conditions. The sustainability of a tightening Fed, rising equities, and strengthening dollar is unknown. New equity highs in August could provide a negative sentiment for the rest of the year, yet it has not paid to bet against stocks. Broad commodity exposure has the potential to benefit from independent market trends that are less reliant on a clear macro picture. While uncertainties abound, we remain committed to robust risk management and capturing long term trends wherever they may develop.


EQUITIES

Equities broadly strengthened during the period with the U.S. outperforming other countries due to continued outperformance of earnings. In the U.K., ongoing Brexit ramifications caused the British equity market to underperform. In Asia, China struggled to shake off trade tensions and ended the month down more than 2%.

We closed a long position in the Topix index and opened new long positions in Asian equity indexes in China and Taiwan. These changes caused our overall exposure to equities to increase slightly during July.


FIXED INCOME

U.S. 10-year yields traded towards the high end of the current range and ended the month just under 3%. Concerns that the Bank of Japan was considering a strategy alteration during their end of month meeting caused global yields to rally. In Europe, political resignations and concerns of a no-confidence vote in the U.K. led concerns that the Bank of England would not hike interest and caused rates to fall for a short period of time before rebounding ahead of the August 2nd meeting.

We had no fixed income position changes during the month and our overall exposure to the sector remained fairly stable during July. July.


CURRENCIES

The U.S. dollar ended the month nearly unchanged versus its major counterparts. The greenback outperformed versus the Japanese yen, but underperformed versus the, Swiss franc, Australian and New Zealand dollars.

Our only currency position change was in Japanese yen versus the U.S. dollar. We initiated a new short position in yen, adding to our long U.S. dollar exposure in the greenback. This minor change saw our overall currency exposure remain fairly stable during the month.


COMMODITIES

Performance in agricultural commodities was mixed during the month with short positions in lean hogs and sugar adding nearly 1% of gains to the portfolio during July. Meanwhile, short grain positions were adversely effected by rallies in beans, corn and wheat. The energy complex generally weakened during the month and long positions in oil detracted from performance. Oil prices fell sharply during the first half of the month on the heels of increased supply expectations. Brent crude ended the month nearly 7% lower after rebounding slightly in the last week due to ongoing geopolitical tensions. In precious metals, gold fell sharply in line with a stronger U.S. dollar and ended the month more than 2% lower.

We opened new short positions in gold and silver and closed a long position in aluminum. In agriculturals, we opened a new long position in milling wheat and closed a short position in rapeseed. These changes caused our overall commodity exposure to decrease slightly, yet it remains our largest risk allocation for the time being.


GLOSSARY
Commodity Market
A physical or virtual marketplace for buying, selling, and trading raw or primary product such as natural resources, agricultural products, and livestock.
Forward Contract
A non-standardized contract between two parties to buy or sell a specified asset of specified quantity with delivery and payment occurring on a specified date.
Futures Contract
A standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality with delivery and payment occurring on a specified date.
Long
Buying an asset such as a stock, commodity or currency with the expectation that the asset will rise in value.
Risk Allocation
The estimated maximum equity a position could lose, divided by the estimated aggregate equity currently at risk of loss across all positions inthe portfolio.
Short
Selling an asset such as a stock, commodity or currency, with the expectation that the asset will decrease in value.
Long-Term
Holding periods averaging greater than one year.

PROSPECTUS OFFERING DISCLOSURE

Investors should carefully consider the investment objectives, risks, charges and expenses of the Longboard Managed Futures Strategy Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained at https://www.longboardfunds.com or by calling 855-294-7540. The prospectus should be read carefully before investing. The Longboard Managed Futures Strategy Fund is distributed by Northern Lights Distributors, LLC, a FINRA/SIPC member. Longboard Asset Management, LP, is not affiliated with Northern Lights Distributors, LLC.

MUTUAL FUND RISK DISCLOSURE

Mutual funds involve risk including possible loss of principal. The fund will invest a percentage of its assets in derivatives, such as commodities, futures and options contracts. The use of such derivatives and the resulting high portfolio turnover may expose the fund to additional risks that it would not be subject to, if it invested directly in the securities and commodities underlying those derivatives. The fund may experience losses that exceed those experienced by funds that do not use futures contracts, options and commodities. Changes in interest rates and the liquidity of certain investments could affect the fund’s overall performance. The fund is non-diversified and as a result, changes in the value of a single security may have significant effect on the fund’s value. Other risks include credit risks and investments in fixed income securities, structured notes, asset-backed securities and foreign investments. Furthermore, the use of short positions and leveraging can magnify the potential for gain or loss and amplify the effects of market volatility on the fund’s share price. The fund is subject to regulatory change and tax risks. Changes to current regulation or taxation rules could increase costs associated with an investment in the Fund.

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