RISR & FIXP Commentary for April 2025
Click here for a pdf version of this commentary.
RISR Performance Summary
The FolioBeyond Alternative Income and Interest Rate Hedge ETF (ticker: RISR) returned 1.79% based on the closing market price (1.83% based on net asset value or “NAV”) in April. In comparison, the ICET7IN Index (US Treasury 7-Year Bond Inverse Index) returned -1.05% while the Bloomberg Barclays U.S. Aggregate Bond Index ("AGG") returned 0.39% during the same period.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, April be worth more or less than their original cost and current performance April be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling 866-497-4963. Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Returns beyond 1 year are annualized.
A fund's NAV is the sum of all its assets less any liabilities, divided by the number of shares outstanding. The market price is the most recent price at which the fund was traded. The fund intends to pay out income, if any, monthly. There is no guarantee that these distributions will be made.
Total Expense Ratio is 1.23%.
For standardized performance click here.
There was a great deal of “churn” in financial markets during April, as investors awaited the Trump administration’s long-anticipated announcement on tariffs that was set for April 2. They avoided April 1 announcement so there would be no mistaking the tariff terms for an April Fool’s Day joke, which didn’t exactly inspire confidence in the ultimate announcement.
Long term interest rates traded in a 20 basis point range between 4.16% and 4.36% on the 10-year Treasury bond, with a total of nine directional reversals over the course of the month. RISR’s price performance during the month was likewise range-bound, trading between 36.29 and 36.81. There were steady inflows during the month with total assets increasing by roughly 15%.
Despite interest rates ending the month modestly lower, RISR’s performance was helped by a modest steepening of the yield curve. Maturities from 2-5 years fell by around 13-14 bps, while the 10-year declined only 10 bps and the long bond dropped 5 bps. A steepening yield curve tends to improve the value of the MBS IOs RISR holds, because it tends to suppress prepayment rates and improves discounted cash flows, even as it reduces the financing costs of loan originators and servicers. This steepening trend has been in place for several quarters, and has helped the YTD performance of RISR, even though the absolute level of rates has generally fallen.
FIXP Performance Summary
FolioBeyond’s Enhanced Fixed Income Premium ETF (ticker: “FIXP”) seeks to provide income and, secondarily, long-term capital appreciation. The Fund invests in a portfolio of ETFs representing certain sectors of the fixed income market. In addition, the Fund seeks to generate additional income by writing options on these same ETFs, or other ETFs we believe have attractive prices and desirable correlation and volatility characteristics.
April was the third full month of performance since the Fund’s January 22 launch. For the month, FIXP returned -0.78% (-0.69% based on NAV), which is roughly equal to the return of the S&P 500 over the month. As it was the prior month, the decline was driven largely by a decline in the value of our position in REM (-5.12%), the iShares Mortgage Real Estate ETF. REM holds shares in mortgage REITs [1], including residential and commercial real estate interests. Mortgage REITs have been hit especially hard in recent months due to growing concerns about credit and concerns over the amount of leverage they often employ. This has occurred despite the fact that REM holds large positions in agency mortgages which are typically not subject to the kinds of credit risks that affect non-agency and commercial mortgage loans. Nevertheless, REM accounted for a large portion of the decline in FIXP in March and April. As of this writing, REM has stabilized and our algorithm has reduced our exposure to this sector meaningfully, from around 10% to roughly 5%.
The market volatility (discussed in more detail below) and changes in measures of credit risk induced a number of changes in portfolio composition in April. Our allocation to BKLN, a bank loan ETF was reduced from an allocation of 30% to 20%. Interest rate duration was also reduced through the outright sale of SHYG (high yield) and TLT (long term UST), in favor of shorter duration ETFs SJNK (0-5 year high yield) and SHV (UST shorter than 1 year). FIXP’s option holdings contributed approximately 0.60% to April’s total return.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance and may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling 866-497-4963. Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Returns beyond 1 year are annualized.
A fund's NAV is the sum of all its assets less any liabilities, divided by the number of shares outstanding. The market price is the most recent price at which the fund was traded. The fund intends to pay out income, if any, monthly. There is no guarantee that these distributions will be made.
Total Expense Ratio is 1.07%.
For FIXP standardized performance click here.
FIXP utilizes a quantitative model to allocate across all sectors of the fixed income market, using ETFs including: short-, medium- and long-term Treasuries, investment grade and high-yield corporates, commercial and residential mortgage REITs, municipals, bank loans, and others. The allocation model considers a number of factors that we believe drive returns for these sectors including risk-adjusted yield, volatility, correlation, momentum, liquidity and other factors. Typically, the model will make allocations to 4-8 ETFs from a pre-selected list of 24 sector ETFs. Allocations are checked daily, and rebalancing occurs as needed, but historically this occurs roughly every 60-90 days.
In addition to its ETF holdings, FIXP also writes options to generate additional income from premiums received. In April, that amounted to a positive contribution to total returns of around 12.5 bps or 1.45% annualized.
The allocation model that FIXP uses has been running for private clients and model portfolios for more than three years, and we are very excited to be bringing this advanced algorithm to ETF investors. Please reach out to us to learn more and to obtain detailed information and fund documents.
Market Outlook
Liberation Day: You Get a Tariff, and You Get a Tariff…
On April 2, President Trump announced global tariffs the US would impose on all its trading partners. He stated that April 2 was chosen to avoid any confusion over whether the historically high rates might be taken as an April’s Fools Day joke. It is good that he did so, because one could be forgiven for thinking he couldn’t possibly be serious. The tariff announcement date was labeled “Liberation Day,” in typical Trumpian unironic fashion.
The market reaction was, to put it mildly, negative. Stock markets in the US and globally collapsed, with the largest declines seen in at least five years. By April 8, the S&P 500 was down by 12%, and the 10-year Treasury rate had jumped by almost 30 bp. At that point the Administration abruptly reversed course and announced a 90-day pause in most, but not all, of the tariffs announced just a few days prior. Notably excluded from the pause were the tariffs on China. Trump supporters described the move a sophisticated strategic move, calling it “4-D chess.” Others less in Trump’s corner called it chaotic, undisciplined and frantic. Whichever perspective one takes, the immediate market impact was a massive increase in volatility and uncertainty.
The remainder of April was characterized by constantly shifting sentiment based on little actual news other than tweets from the President or those close to him. Of particular concern was the basis for computing the tariff rate for each country. The formula was based on the size of bilateral trade imbalance between the US and the target country. Most experts in trade economics were puzzled by this since it seemed to be aimed at achieving perfect bilateral trade balance between the US and each of its trading partners. This is a policy goal that has never been explicitly embraced by the US or any other nation, and would be basically impossible to achieve in any case, barring a massive, catastrophic curtailment in global trade flows. Much fun was made of the imposition of punishing tariff rates on largely uninhabited islands in the South Pacific.
Left unanswered was exactly what was expected to occur during the 90-day timeout. Trade deals are highly complex and detailed negotiations that historically have taken years to work out and document. There is also the question of whether the American President even has the authority to unilaterally negotiate such agreements without the consent or even participation of Congress. The situation, in a word, is a mess.
Your Move, Jerome Powell
To add to the confusion and turmoil, President Trump had quite a lot to say about the Federal Reserve and its head Jay Powell. Trump has made it abundantly clear he would like interest rates to be lower than they are currently. Exactly what he believes they should be is unsaid, but he wants them lower. Since the Fed is not intending to act on this desire the President has described Powell as a “loser” and “slow.” At various times during the month he said he wanted to fire Powell, claiming without evidence that he had that power, then saying he didn’t have any plans to do so. He later said if “If I want him out, he’ll be out of there real fast.” To his credit, Powell repeatedly declined to rise to that bait, stating he intended to serve the remainder of his term, which runs through May 2026, and nothing to say beyond that.
In a widely covered speech at the Economic Club of Chicago on April 16, Powell laid out the Fed’s plans. In that speech he made it clear the Fed would not be pressured or bullied into making any changes in policy. He noted that inflation was still above the Fed’s 2% target, while labor markets remained relatively strong. These are, of course, the Fed’s statutory areas of responsibility. Consequently, they had no plans to pre-emptively cut (or raise) interest rates, but instead would wait for incoming data to provide greater clarity. He declined to respond specifically to tariffs, although one could easily surmise he is not a supporter of high tariff rates. His views on trade policy appear to be mainstream, largely supporting free trade to the greatest extent possible.
In light of the chaos and statements from Powell and other Fed speakers during the month, market expectations about the pace of Fed rate cuts for the balance of 2025 were curtailed from four cuts, to perhaps three. Based on what we know now, and the impossibility of achieving comprehensive trade reform in 90(!) days we believe the greatest likelihood for rate cuts is either one or none.
Where Do We Go from Here?
Making predictions is hard—especially about the future. Whether Yogi Berra actually ever said that or not, truer words have never been spoken. We prefer not to make outright predictions. Instead we think in terms of possible scenarios and likelihoods. The only truly important trade discussion are between i) the US and Europe, ii) the US and China, and iii) Europe and China. These are by far the largest trading blocks, as shown in the table below:
Sources: Various, including Bureau of Economic Analysis, Eurostat, UNCTAD; complied by Grok AI.
Here are several possible scenarios:
First, Europe and China might capitulate and agree to a sweeping restructuring of the global trade system that greatly favors the US. This would mean tariff rates of at least 10% on most traded goods, the reduction of non-tariff barriers and opening of domestic markets to US products. Most importantly this would require deep systemic changes in the organizing principles of commerce, regulation, labor policies and intellectual property for the EU and China. Many of the restrictions on US exports to the EU, especially for agricultural goods, are based on fundamental safety and nutritional policies. Europe is highly unlikely to toss these aside. In the case of China, its trade policies are inextricably linked to its long-term geopolitical goals. It is not too strong to say that China is aiming for dual—or even sole—geo-political hegemony vis-à-vis the US.
In this case, net exports from the US increase alongside an increase in prices for imported goods. Growth in the US economy is given a modest boost that is offset by slowing economic growth in both the EU and China.
Likelihood of this outcome: <10%.
Second, The EU and China turn toward each other and away from the US, based on a reluctant conclusion of irreconcilable differences. Trade flows between these zones have been increasing in recent years, and both entities have expressed interest in continuing this trend. In this case, US exports to both regions erode while China and the EU enter into ever more comprehensive trade agreements. The US dollar declines as the dominant currency for international trade in favor of the Euro (or less likely, the Yuan), and declines in foreign exchange value. This is the US Stagflation scenario. Slower domestic growth and increased inflation.
Likelihood of this scenario: 15-20%
Third, we enter into an extended period of alternating episodes of euphoria and despair as premature announcements of breakthroughs or agreements are later shown to be ephemeral, half-baked or non-existent. 90-day delays get extension after extension, and tariff threats increase and decrease with stomach-churning frequency. Very little actually gets resolved, tariffs and non-tariff barriers gradually but steadily creep up. Financial markets surge and then retreat based on rumors, news headlines and tweets. Think a continuation of the current environment indefinitely.
Likelihood of this scenario: 50-60%
Fourth, both the EU and China could dig their heels in an choose to fight the US aggressively, while the US stubbornly refuses to concede. In this case global economic growth slows sharply, leading to a significant global recession or worse. The last time this scenario was played, it led to the Great Depression and ultimately WWII. [2]
Let us hope the likelihood of this scenario is only 10-15%
Conclusion – Continued Volatility
The current economic and geo-political situation is not good. Any hopes for a coherent, well thought-out trade reforms have been thoroughly dashed. Uncertainty rules and that means businesses and households will pare back spending. The financial press and political spin-doctors will continue to engage in a reckless cycle of all-clear messages, only to see market rallies evaporate in days or even hours.
There is a prudent, well-established playbook for this type of environment. Protect your capital and look for investments that generate current cash income. Taking wild swings in either direction and trying to time the market or buying dips are the path to financial ruin. This goes both for equity and fixed-income portfolios.
Please contact us to explore how RISR and FIXP might fit into your overall strategy, to help you manage risk while generating an attractive current yield.
[1] A REIT is a Real Estate Investment Trust, which is a special type of fund that holds real property or debt backed by real property and receives certain tax benefits as long as it distributes essentially all of its income as a dividend.
[2] Obviously, WWII had a great many catalysts, but the devastating impacts from the Great Depression and ruinous tariffs and non-tariff barriers, including oil embargoes, were certainly among the most significant contributors.
Portfolio Applications
We believe RISR and FIXP can provide attractive, thematic strategies that provide strong correlation benefits for both fixed income and equity portfolios. They can be utilized as part of a core holdings for diversified portfolios or as an overlay to manage the risks of fixed income portfolios. RISR can be used as a macro hedge against rising interest rates with less exposure to equity beta and negative correlation to fixed income beta. The underlying bonds are all U.S. agency credit that are guaranteed by FNMA, FHLMC or GNMA. Also, timing is on our side as the strategy generates current income if interest rates were to remain within a trading range. FIXP offers a broadly diversified exposure to multiple sectors of the fixed income markets in an algorithmically optimized manner.
Please contact us to explore how RISR and FIXP can be utilized as a unique tool to adjust your portfolio allocations in the current high volatility environment.
| Yung Lim | Dean Smith | George Lucaci |
|---|---|---|
| Chief Executive Officer | Chief Strategist and Marketing Officer | Global Head of Distribution |
| Chief Investment Officer | RISR Portfolio Manager | |
| ylim@foliobeyond.com | dsmith@foliobeyond.com | glucaci@foliobeyond.com |
| 917-892-9075 | 914-523-2180 | 908-723-3372 |
This material must be preceded or accompanied by a prospectus. For a copy of the prospectus please click here for RISR and here for FIXP. Please read the prospectus carefully before investing.
Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs trade at a premium or discount to their net asset value. The fund is new and has limited operating history to judge fund risks. The value of MBS IOs is more volatile than other types of mortgage related securities. They are very sensitive not only to declining interest rates, but also to the rate of prepayments. MBS IOs involve the risk that borrowers default on their mortgage obligations or the guarantees underlying the mortgage-backed securities will default or otherwise fail and that, during periods of falling interest rates, mortgage-backed securities will be called or prepaid, which result in the Fund having to reinvest proceeds in other investments at a lower interest rate.
The Fund’s derivative investments have risks, including the imperfect correlation between the value of such instruments and the underlying assets or index; the loss of principal, including the potential loss of amounts greater than the initial amount invested in the derivative instrument. The value of the Fund’s investments in fixed income securities (not including MBS IOs) will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned indirectly by the Fund. Please see the prospectus for a complete description of principal risks.
The Morningstar Rating™ for funds, or "star rating," is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds and separate accounts) with at least a three-year history without adjustment for sales load. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk- Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars, and the bottom 10% receive one star. The Overall Morningstar Rating™ for a managed product is derived from a weighted average of the performance figures associated with its three-, five- and 10-year (if applicable) Morningstar Rating™ metrics. The weights are: 100% three-year rating for 36 - 59 months of total returns, 60% five-year rating/40% three-year rating for 60 - 119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. As of 9/30/2024, RISR was rated against the following number of Nontraditional Bond Funds over the following periods: 272 for the 3-year time period. RISR received 5 stars for those periods. Ratings for other share classes may differ. Past performance is no guarantee of future results.
FIXP Risks
Underlying ETFs Risks. The Fund will incur higher and duplicative expenses because it invests in underlying ETFs, including Bond Sector ETFs and broad-based bond ETFs (collectively, “Underlying ETFs”). There is also the risk that the Fund may suffer losses due to the investment practices of the Underlying ETFs. The Fund will be subject to substantially the same risks as those associated with the direct ownership of securities held by the Underlying ETFs.
Fixed Income Risk. The prices of fixed income securities respond to economic developments, particularly interest rate changes, as well as to changes in an issuer's credit rating or market perceptions about the creditworthiness of an issuer. In general, the market price of fixed income securities with longer maturities will increase or decrease more in response to changes in interest rates than shorter-term securities.
Option Overlay Risk. The Fund's use of options involves various risks, including the risk that the options strategy may not provide the desired increase in income or may result in losses. Selling call and put options exposes the Fund to potentially significant losses if market movements are unfavorable. The Fund may also experience additional volatility and risk due to changes in implied volatility (the market's forecast of future volatility), strike prices, and market conditions. The Fund may sell options on instruments other than the Fund's Bond Sector ETFs. This can expose the Fund to the risk that options can vary in price in ways that do not correspond to the Bond Sector ETFs held by the Fund, so called basis-risk.
Interest Rate Risk. Generally, the value of fixed income securities will change inversely with changes in interest rates. As interest rates rise, the market value of fixed income securities tends to decrease. Conversely, as interest rates fall, the market value of fixed income securities tends to increase.
New Fund Risk. The Fund is a recently organized management investment company with no operating history. As a result, prospective investors do not have a track record or history on which to base their investment decisions.
Diversification does not eliminate the risk of experiencing investment losses.
Index Definitions
Bloomberg Barclays US Aggregate Bond Index: A broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
US Treasury 7-10 Yr Bond Inversed Index: ICE U.S. Treasury 7-10 Year Bond 1X Inverse Index is designed to provide the inverse of the daily return of the ICE U.S. Treasury 7-10 Year Bond Index (IDCOT7). ICE U.S. Treasury 7-10 Year Bond Index tracks the performance of US dollar denominated sovereign debt publicly issued by the US government in its domestic market. Qualifying securities of the underlying index must have greater than or equal to seven years and less than 10 years remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and an adjusted amount outstanding of at least $300 million.
S&P 500 Index: The S&P 500 Index, or Standard & Poor's 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S.
IBOXHY Index: iBoxx USD Liquid High Yield Total Return Index measures the USD denominated, sub-investment grade, corporate bond market. The index includes bonds with minimum 1 years to maturity,
minimum amount outstanding of USD 400 mil. Bond type includes fixed-coupon, step-up, bonds with
sinking funds, medium term notes, callable and putable bonds.
Definitions
Alpha: a return achieved above and beyond the return of a benchmark or proxy with a similar risk level.
Annualized Equivalent Yield: represents the annualized yield based on the most recent month of income distribution: (income distribution x 12 months)/price per share.
Basis Points (bps): Is a unit of measure used in quoting yields, changes in yields or differences between yields. One basis point is equal to 0.01%, or one one-hundredth of a percent of yield and 100 basis points equals 1%.
Beta measures: the volatility of a security or portfolio relative to an index. Less than one means lower volatility than the index; more than one means greater volatility.
Convexity: A measure of how the duration of a bond changes in correlation to an interest rate change. The greater the convexity of a bond the greater the exposure of interest rate risk to the portfolio.
Correlation: a statistic that measures the degree to which two securities move in relation to each other.
Coupon: is the annual interest rate paid on a bond, expressed as a percentage of the bond’s face value.
CUSIP: An identifier number that stands for the Committee on Uniform Securities Identification Procedures assigned to stocks and registered bonds in the United States and Canada.
Duration: measures a bond price’s sensitivity to changes in interest rates. The longer a bond’s duration, the higher its sensitivity to changes in interest rates and vice versa.
GNMA: Government National Mortgage Association
FNMA: Federal National Mortgage Association
FHLMC: Federal Home Loan Mortgage Corporation
Short Investment (Shorting): is a position that has been sold with the expectation that it will decrease in value, the intention being to repurchase it later at a lower price.
Distributed by Foreside Fund Services, LLC.