Longboard

COMMENTARY: Managed Futures Strategy Fund February 2018
WAVIX

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Commentary in PDF format.


HIGHLIGHTS

    Contributors
  • Equities: None
  • Fixed income: Short Eurodollar
  • Currencies: Short U.S. dollar versus South African rand
  • Commodities: Long cotton
    Detractors
  • Equities: Short VIX
  • Fixed income: Short 3-year Australian Bonds
  • Currencies: Long Swiss Franc versus Japanese yen
  • Commodities: Long Crude

Past Commentaries

February 2018

January 2018

December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

RECAPS

The fund returned -10.51% in February, with the most notable losses coming from the equity, currency and commodity sectors.

After 15 consecutive months of positive returns, the S&P 500 Index fell amid a volatility blow up and increased concerns of global inflation. The climate challenged long-term equity uptrends.

Commodity losses were broad based in February as rising grain prices and falling metal and energy prices weighed on performance. In particular, global uncertainty boosted gold toward the start of the month but the precious metal ultimately ended February lower. Meanwhile, crude oil sold off due to concerns of oversupply. In grains, heavy rains in the Midwest led to a surge in corn prices.

The U.S. dollar seesawed amid the global equity sell off. However, the dollar moved against its long-term trend and ended the month higher compared to its major counterparts, as political uncertainties in Europe weighed on the British pound and euro currency. The Japanese yen also experienced a pullback from its established long-term trend, rallying against most major global currencies in February.

In February, the managed futures program experienced poor performance in equities. A majority of the losses came from exposure to other markets, including the US dollar and commodities. While Longboard maintains that a fully diversified portfolio should provide non-correlated returns, there are the rare occasions when many longterm trends reverse in tandem which lead to negative returns in multiple asset classes. The largest risk allocation in our portfolio was in commodities, which was twice the exposure we had in currencies and equities by month end.

Performance (as of 2/28/2018)
*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 2.88% 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

Looking ahead, the path of interest rate hikes in the United States will remain in focus. New Federal Reserve Chairman Jerome Powell backs a normalization plan similar to his predecessor, however the market regime after the volatility blow up adds new complexity.

February was a stark reminder of how important it is to have robust risk management in place. While the performance in February was uncomfortable, it is not out of character following the significant gains the portfolio realized in 2017 and early 2018.

Longboard remains committed to our disciplined, rulesbased strategies as we seek further clarity on the health of equity markets.


EQUITIES

Equities were in focus throughout the month with U.S. stock markets leading the way lower. At one point, U.S. equities fell more than 10% from the January highs, but ultimately recovered most of their losses. Cyclical and defensive sectors outperformed the overall market, while the energy sector underperformed.

We closed long positions in European equities, including Euro STOXX 50, FTSE 100 Index and DAX Index. We also closed a short VIX futures position. We remain long equities, but our overall exposure has decreased since January.


FIXED INCOME

U.S. yields rose after upbeat employment data in early February, however the equity sell off sent U.S. 10-year yields temporarily lower. When equity selling subsided, bond yields rose for the remainder of the month. Hawkish Fed minutes caused U.S. 10-year yield to reach new highs not seen since 2014.

We opened new short positions in U.S. 30-year bonds. Our overall exposure to fixed income grew slightly, as the strength of trends increased.


CURRENCIES

The U.S. dollar strengthened versus most of its G10 counterparts. This was due to concerns that inflation would force the Fed to hike interest rates faster than expected. Elsewhere, the British pound and the euro currency both underperformed. Political turmoil around British Prime Minister Theresa May and continued Brexit concerns weighed on the sterling while anticipation of the Italian election helped to push the euro lower.

We closed long positions in the Australian and Canadian dollars versus the Japanese yen as well as the Brazilian real versus the dollar. Meanwhile we opened a long position in the yen versus the U.S. dollar. Our overall risk in currencies is positioned to capture the long-term downtrend in the US dollar.


COMMODITIES

Commodities generally weakened as the U.S. dollar ended the month higher. Oil slid in reaction to rising U.S. stockpiles while precious metals fluctuated with the U.S. dollar. After Rising grain prices adversely effected short positions in wheat and corn.

We opened new short positions in soybean oil and Tokyo rubber, and new long positions in soy meal. We also closed short positions in cocoa and long positions in feeder cattle. Commodities remain the largest risk exposure in the portfolio.


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.

3298-NLD-3/15/2018