Longboard

COMMENTARY: Managed Futures Strategy Fund November 2018
WAVIX

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Commentary in PDF format.


HIGHLIGHTS

    Contributors
  • Equities: Short Dax Index (Germany), EuroSTOXX (eurozone), Short China A50
  • Commodities: Short Palm Oil and coffee, Long Natural Gas
  • Currencies: Long U.S. dollar versus Norwegian Krone, Japanese yen, and Brazilian real.
  • Fixed income: Long German 5-year, 10-year, and 30-year bonds
    Detractors
  • Short S&P Nifty Index, short Hang Seng Index, short Hang Seng China Index
  • Commodities: Long Gas oil, Brent crude, and lean hogs
  • Currencies: Short Australian dollar versus Japanese yen and Canadian dollars and short South African rand versus U.S. dollar
  • Fixed income: Long Canadian 10-year, short U.S. 10-year and 5-year bonds

Past Commentaries

November 2018

October 2018

September 2018

August 2018

July 2018

June 2018

May 2018

April 2018

March 2018

February 2018

January 2018


RECAP

The fund was down -4.39% during the month as losses in currencies, indexes and fixed income weighed on performance.

US equity markets continued to look rocky but ultimately ended the month slightly higher. We have seen continued outperformance of utilities and health care as risk sentiment remains weaker than normal. In the international markets, China outperformed and ended the month nearly 7% higher as trade tensions subsided during the month. The U.S. Federal Reserve began indicating a slower pace of interest rate hikes which sent yields lower and soothed markets towards the end of the month.

Currencies had been in a strong dollar uptrend but outperformance by emerging market equities and reduced expectations from the Fed sent the U.S. dollar lower versus some key counterparts including the Australia and New Zealand dollars. Significant market moves in commodities added to the uncertainties across macro themes, with crude oil falling by more than 20%.

Performance (as of 11/30/2018)
*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 3.12% and 2.88% 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

There is no reprieve in sight for markets. A year that has tested the resilience of traders shows no signs of calming. As we head into the final month of a volatile year, many of the same themes remain; particularly the ongoing geopolitical tensions between the U.S. and China. To make the investment landscape more complicated, market participants are looking at rhetoric from the Federal Reserve through a microscope.

Headline chasing and nuanced interpretation of monetary policy are common place when markets have a sense of unrest. However, in environments like this, a core focus on systematic risk management is required. While we have had short exposure to international equities since October, should the U.S. markets continue to breakdown, we are prepared to add shorts in domestic equities as well.


EQUITIES

Performance in stock indexes was negative as equities ended the month marginally higher. Emerging markets slightly outperformed developed markets aside from Europe as poor economic data and Brexit concerns remain. Larger losses came from rallies in Hong Kong, Chinese, Spain and Indian indexes while smaller gains were recorded from weakness in German and Taiwanese markets.

Our overall exposure to the equity sector remained nearly unchanged. Our portfolio is flat U.S. equities and short across the rest of the world.


FIXED INCOME

The U.S. 10-year yield reached a seven year high of 3.25% following the midterm elections but ended the month closer to 3% as the Federal Reserve is thought to be slowing the pace of further interest rate hikes. Elsewhere, Brexit concerns pushed yields lower in the U.K.

During the month we opened a new long position in Japanese government bonds and closed a short position in Canadian government bonds. Our overall exposure to fixed income persists at historic lows and remains short U.S. and Italian bonds while long German and Japanese bonds.


CURRENCIES

The U.S. dollar strength during 2018 has been tied to U.S. equity outperformance and a hawkish Federal Reserve committed to gradual policy normalization. This macro theme was challenged in November as equities sold off and the Federal Reserve hinted at fewer hikes. The U.S. dollar outperformed versus the Canadian dollar and British pound but underperformed versus the Australian and New Zealand dollars.

In currencies, we opened a new short position in Canadian dollar versus the U.S. dollar. Meanwhile we closed short positions in the Australian dollar vs. the British pound and the Canadian dollar. Our overall currency exposure decreased slightly over the period and our current exposure is exclusively long the US dollar.


COMMODITIES

Volatility persisted in the commodity sector during November. Oil fell by more than 20% as supply concerns were alleviated, meanwhile gold rallied slightly during the month due to dovish interpretations of Federal Reserve comments. Agricultural commodities were hurt as grains rallied on trade war concerns. China is one of the largest importer of US grains.

In the commodity sector, we closed short positions in cocoa and lean hogs while we closed long positions in crude, heating oil, gasoline, gas oil, and kerosene. We initiated new long positions in natural gas and oats and opened new short positions in aluminum and nickel. These adjustments slightly increased our exposure to commodities and the asset class 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.

9129-NLD-12/18/2018