Longboard

COMMENTARY: Managed Futures Strategy Fund December 2017
WAVIX

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Commentary in PDF format.


HIGHLIGHTS

    Contributors
  • Equities: Long U.K. equities
  • Commodities: Long nickel
  • Currencies: Long Canadian dollar versus U.S. dollar
  • Fixed income: Short 10-year Canadian government bonds
    Detractors
  • Equities: Long European equities
  • Commodities: Short silver
  • Currencies: Long Mexican peso against the U.S. dollar
  • Fixed income: Long 10-year Italian government bonds

Past Commentaries

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

RECAP

The fund returned +3.72% in December with gains from the commodity and equity sectors which more than offset minimal losses in currencies and fixed income.

Equity strength continued as upbeat data and the Republican tax package met expectations that U.S. economic growth would remain elevated for the time being. Against this backdrop, the Federal Reserve hiked interest rates and reaffirmed its commitment to normalizing the balance sheet.

Commodities outperformed other asset classes during the month with strong uptrends in base metals. Oil products strengthened as global pipeline issues caused supply concerns. Our exposure to commodities remained the largest risk allocation in the portfolio, followed by our long positions in global equities. Limited or contained trends in currencies and fixed income have kept exposure low in those sectors.

Performance (as of 12/31/2017)
*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 2.87% 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.longboardmutualfunds.com. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.

OUTLOOK

As a strong year for equities ends, skepticism continues around the sustainability of stock valuations. Although inflation remained elusive and geopolitical concerns persisted, the S&P 500 rallied every month of 2017.

Looking ahead, many uncertainties loom on the horizon. Macro investors are keeping an eye on the implications of the year-end tax cuts in the United States. Meanwhile, Brexit negotiations in Europe and global geopolitical tensions are likely to continue to make headlines well into the New Year. Even so, equity markets appear resilient, volatility remains at historically low levels, and broad market trends provide long-term trend followers opportunities for diversified revenue streams. We remain committed to our systematic, rules-based approach as new market developments unfold.


EQUITIES

Energy and material sectors led U.S. equity markets to new highs, as rising commodity prices boosted valuations. Globally, the United Kingdom outperformed with new agreements in Brexit negotiations. However, Eurozone equities fell on the back of a stronger euro. 2017 was a strong year for global equities as the sector enjoyed its best performance since the global financial crisis.

Directional positions within the equity sector remained intact. However, we did not open any new positions. Instead, we slightly reduced overall exposure going into January. We remained long global equities, as the strength and scope of longterm trends persist for now.


COMMODITIES

Commodities generally strengthened. Base metals outperformed as optimism surrounding U.S. growth potential bolstered copper. A commitment by OPEC to limit supply through 2018 and news about cracks in pipelines caused oil to strengthen. Meanwhile, reduced demand for natural gas held prices down until the colder weather hit in late December. Quieter, end-of-year trading sessions contained prices in agricultural and soft commodities, with wheat and live cattle selling off slightly.

We opened new short positions in platinum, silver, New York cocoa and rapeseed, along with a new long position in cotton. We closed long positions in oats and live cattle. These changes slightly increased our overall commodity exposure.


CURRENCIES

Expectations for fiscal stimulus allowed for U.S. dollar strength at the start of December but ultimately the U.S. dollar ended the month lower when compared to its major counterparts as further communication from the Fed was interpreted as dovish.

We closed long positions in the euro versus the British pound and short positions in the New Zealand dollar versus the U.S. dollar. Meanwhile, we opened long positions in the British pound versus the Australian dollar and opened short positions in the U.S. dollar versus the South African rand. These changes slightly increased our currency exposure going into January.


FIXED INCOME

The U.S. yield curve, the spread between 2- and 10-year treasuries, fell again to end the year around 50 basis points. These historically low levels gained much attention among market participants. Despite the Federal Reserve’s recent interest rate hike, stubbornly low inflation and concerns about the Fed’s ability to reach targeted inflation levels caused yields to remain subdued.

We opened new short positions in eurodollars and Australian 3-year bonds. However, our fixed income exposure remained on the low side of its historical range, with a lack of long-term trends persisting in global fixed income.


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 http://www.longboardmutualfunds.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.

3100-NLD-1/16/2018