COMMENTARY: Managed Futures Strategy Fund September 2018
WAVIX

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Commentary in PDF format.


HIGHLIGHTS

    Contributors
  • Equities: Long Japanese Nikkei
  • Fixed Income: Short US 10 year note
  • Currencies: Long US dollar versus Japanese yen
  • Commodities: Long Crude Oil
    Detractors
  • Equities: Long Indian Nifty Index
  • Fixed Income: Long German 5 year bobl
  • Currencies: Long US dollar versus South African rand
  • Commodities: Short Lean Hogs

Past Commentaries

September 2018

August 2018

July 2018

June 2018

May 2018

April 2018

March 2018

February 2018

January 2018


RECAP

The fund returned a loss of 2.46% in September as trend reversals in currencies and equities detracted from performance.

U.S. equities made new record highs in September, but the market’s breadth suffered a notable deterioration heading into the back half of the month. The divergence between new record highs in equity indexes and a growing percentage of stocks making new 52-week lows reached its most extreme level since December 1999. Historically, this kind of divergence has preceded major market corrections, including the bursting of the Dot Com mania. These weakening internals eventually rippled across the broader market. Tightening global monetary conditions were also cited as the primary cause for the recent weakness in risk assets.

Currencies were a drag on the portfolio due to underperformance of the U.S. dollar versus its major counterparts. This was despite the third interest rate hike of 2018 from the U.S. Federal Reserve; historically a positive signal for dollar strength.

Commodities posted mixed returns during September. Gains from long positions in the energy sector were offset by losses in agricultural commodities such as meats and grains. Despite ongoing market uncertainties, gold continued to fall during September adding to the disjointed nature of markets.

Performance (as of 9/30/2018)
*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

Markets shifted in September as some of the macro themes seemed to change course. 2018 has been built on U.S. outperformance as the U.S. equity markets dominated, the U.S. dollar strengthened, and the Federal Reserve set the standard for interest rate normalization. We have witnessed emerging market turbulence as of late, but domestic markets have remained unphased until recently. Looking ahead, this may signal an important change. The U.S. is not insulated from turbulence elsewhere and geopolitical tensions have the potential to shake the U.S. growth story.

A month of underperformance is not necessarily a start of broad macro reversals, but the health of markets may be challenged in the fourth quarter. If this evolution continues, investors’ commitment to equities will be tested. Amidst this backdrop, a commitment to robust risk management will be key and we believe our portfolio of diverse uncorrelated stocks, bonds, commodities, and currencies will provide key differentiation.


EQUITIES

Global equities were dynamic during the month. After making new highs, cracks began to emerge, and the U.S. markets ultimately underperformed other developed markets. Japan was a clear outperformer, as a weaker yen boosted the Japanese stock market. At the sector level, the energy and material sectors outperformed while the real estate sector fell by more than 2%.

Our global equity sector expanded by adding new short positions in the Spanish Ibex and Chinese A50 during the month, a foreshadowing of weakness seeping into the asset class.


FIXED INCOME

Bonds are a key focus to macro markets at the moment with US yields breaking out of a range and continuing to rise. The knock-on effects remain unknown for the time being but the ability of markets to absorb higher yields may provide insight to the equity markets. Global bonds continue their lackluster performance, particularly in Europe where concerns over Brexit and the Italian budget have impacted performance abroad.

Our number of positions in fixed income remained unchanged as an initiation in US Utlra bonds was offset by a liquidation in German two-year Schatz.


CURRENCIES

Although yields continued to rise in the U.S. and economic data pointed towards continued domestic strength, the U.S. dollar stalled in an uptrend during the month of September. The Canadian dollar benefited from NAFTA negotiations and ultimately ended the month nearly 1% higher versus the greenback. The Japanese yen was the worst performing G10 currency and weakened by 6% during the month.

We added to our portfolio with a new short position in Australian dollar vs the Japanese yen as well as a new long position in the US dollar vs the South African rand.


COMMODITIES

Commodities were relatively unchanged for the month with the biggest move coming from gains in energies. Global oil prices were supported by a weaker US dollar in September as well as concerns that US sanctions on Iran scheduled for November will hamper global supplies.

Losses were concentrated primarily in the meats were rising prices in cattle and hogs adversely effected our portfolio. Metals were little changed as profits from our short gold and silver positions were offset by rising platinum prices.

Trading activity for the month was one sided as we closed long positions in nickel, lumber, and orange juice and short positions in London sugar and live cattle.


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.

3963-NLD-10/19/2018