COMMENTARY: Managed Futures Strategy Fund December 2018
WAVIX

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Commentary in PDF format.


HIGHLIGHTS

    Contributors
  • Equities: Short MSCI EAFE, Spanish IBEX, and eurozone Euro STOXX 50
  • Commodities: Short Aluminum, Sugar, Copper
  • Currencies: Long U.S. dollar versus Norway krona, Canada, and Australia dollars
  • Fixed Income: Long Australian and Japanese 10-year bonds, and German 30-year bond
    Detractors
  • Equities: Short Australian SPI 200
  • Commodities: Long Natural Gas and Short Silver and Gold
  • Currencies: Long U.S. dollar versus Czech koruna, Swiss franc, and Japanese yen
  • Fixed Income: Short U.S. and Italian 30+ year bonds

Past Commentaries

December 2018

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 up +4.83% during the month as gains from short positions in equities and commodities benefited the portfolio.

December was a wild month. Following optimistic sentiment at the beginning of the month as the U.S. and China agreed to a ninety-day trade truce, equities started to breakdown at a faster pace than seen in previous weeks. Weaker than expected data, the government shut down, and lighter trading volumes paved the way for a dismal holiday trading week as global equities ended December down more than 7%. In turn, the bond markets adapted to this weakness and yields declined. The U.S. 10-year yield fell significantly to end the year at levels not seen since January 2018.

The Federal Reserve delivered an anticipated 25bp hike in December which had little impact on the currency markets as this had been factored into current pricing. However, the U.S. dollar weakened versus the euro, Swiss franc, and Japanese yen due to mixed signals from the Federal Reserve and expectations that the Fed would be forced to slow the rate of hikes.

Commodities were not insulated from the volatility in markets. Gold rose more than 5% as a beneficiary of a weaker U.S. dollar and safe haven demand amidst growing economic unknowns. Crude, however, fell more than 8% during the month as planned production cuts did not ease supply concerns.

Performance (as of 12/31/2018)
*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 3.12% 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

Markets never move in a straight line indefinitely and while December was full of equity weakness, the market turned its attention to the Federal Reserve’s response. In the early stages of a stock market correction there is a natural feedback loop. Equity weakness points to a dovish central bank outlook and a dovish central bank outlook serves as a calming agent to markets. When that is solely in reference to market sentiment and transitory factors, this process works exactly as needed. The idea of a dovish Fed is enough to settle the masses allowing markets to take in more information.

As we enter 2019, this process is supporting the stock market for the time being. The assumption that the Federal Reserve will act proactively has soothed some of the fears that we are entering into an equity bear market. However, we are in a new era of volatility. Markets are acutely focused on economic data and the ability for the data to indicate what is next for the stock market.


EQUITIES

We opened new short positions in domestic equities including Nasdaq, S&P 500, and DJIA indexes as well as new short positions in international equities markets in Europe, Australia, Japan. We have also initiated a long position in the VIX. Our overall sector exposure has increased due to continued equity weakness.


FIXED INCOME

We closed short positions across the yield curve in the U.S. and opened new long positions in the U.K., Canada, and Australia. Exposure in the fixed income sector has increased over the period as we exited short positions and added to long international positions.

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

In currencies we opened new long Japanese yen positions versus the euro and British pound. Our overall exposure to the sector decreased since November as the U.S. dollar uptrend has been under pressure amidst expectations of a more dovish Federal Reserve.


COMMODITIES

We opened new short positions in energy markets such as WTI, Brent Crude, Heating Oil and Gas Oil. Additionally, we opened new short positions in London Cocoa and Orange Juice. At the portfolio level, our exposure to commodities remained our largest risk.


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.

3079-NLD-1/19/2019