RISR & FIXP Commentary for July 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 0.71% based on the closing market price (0.72% based on net asset value or “NAV”) in July. In comparison, the ICET7IN Index (US Treasury 7-Year Bond Inverse Index) returned 0.55% while the Bloomberg Barclays U.S. Aggregate Bond Index ("AGG") returned -0.26% 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, July be worth more or less than their original cost and current performance July 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.
Once again, the market’s focus in July was the policy developments coming from Washington. The so-called One Big Beautiful Bill was enacted, to acclaim among President Trump’s supporters, and alarm by many others concerned about the future deficits projected by the Congressional Budget Office. The bill, which was technically a “reconciliation” bill, was passed on a 50/50 tie in the Senate, with Vice President JD Vance casting the tie breaking vote. The bill was signed by the President, symbolically, on July 4. Market reaction was mixed, with equities printing new all-time highs, but concerns about the implications for deficits initially sending interest rates higher.
More volatility was injected from the continuing tariff saga, with announcements about new tariffs, delays, new deals with UK, EU, Japan and South Korea. In each case, however, markets were left wondering about the details of these deals, since none were actually formal written agreements, but mere “handshake deals” that would be subject to negotiation and documentation at some later, unspecified date. Included in some of the deal announcements were wildly unrealistic claims about agreements to invest in the US, or to buy US goods. For instance, the EU announcement was accompanied by a claim that the EU would buy $250 billion per year of LNG[1] from the US. Left unexplained was how such massive volumes, which would be several multiples of total US output and EU usage, would take place. Besides the bilateral tariff negotiations, the US also announced new global tariffs on key industrial commodities including copper. This resulted in extreme volatility in commodity markets, as industrial users were left wondering how this would affect their businesses.
Despite widespread speculation they might cut rates in July, the Fed chose to hold steady at their July meeting. The speculation turned to sober reality when an early July labor report came in materially stronger than expected, although this was later revised downward (more below). In response to the non-cut, an already over-heated political pressure campaign on Fed chair Powell and the rest of the board was further inflamed. There were numerous threats to try to fire Powell before his term expired, or worse, threats to charge him with malfeasance over a construction project at the Fed’s offices. Publicly, Powell was unperturbed by this pressure. However, at the July meeting, two voting members dissented and said they would have cut rates. This was a rare but not unprecedented show of division.
Throughout this year’s volatility, RISR continued to perform as designed, providing an offset to volatile returns in other parts of the market. The table below shows YTD return correlations between RISR and other benchmark ETFs.[2]
Source: Bloomberg, LP
As the table shows, year-to-date, RISR has shown negative correlation to the broad bond market (AGG) as well as intermediate- and long-term treasuries (IEF and TLT). It has also shown very low correlation to stocks, including large cap (SPY) and the tech-heavy NASDAQ (QQQ).
investors seem to be better understanding and appreciating this, and over the course of this year the fund has seen significant inflows. As of July 31, total fund assets stood at $169 million, more than double the amount at the start of the year.
Trading volumes have also been increasing over the course of 2025, which has helped liquidity, and reduced bid/ask spreads.
We are very pleased with the growth in the fund’s assets and trading volumes, and we are grateful for the confidence investors have placed in RISR. This performance has maintained RISR’s standing among the Alternative Bond Funds tracked by Morningstar where it holds the #2 position out of 253 funds for the 3-year period ended 7/31/25.
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.
For the month, FIXP returned 0.03% (0.03% based on NAV), which bested the AGG return of -0.26%. The portfolio holdings were reallocated during the month, as follows:
The changes in portfolio composition resulted from the fund’s dynamic reallocation model. Changes are made based on volatility, momentum, yield, default risk, and other factors and occur based on market observations rather than a fixed schedule. Shares of SJNK and TLK were sold and replaced with a like amount of HYD. This had the effect of reducing corporate credit exposure in favor of diversified municipal credit exposure, while increasing total portfolio duration very slightly.
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, July be worth more or less than their original cost and current performance and July 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 and fund holdings click here.
FIXP’s option holdings contributed minimally to July’s total return, due to low implied volatility in the slightly out of the money options we wrote against our underlying holdings. We continue to explore ways to enhance option premium income despite low premiums generally being paid for such options in the current environment.
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
There are three main narratives driving markets currently: Federal Reserve policy, tariffs and AI. The first two obviously have direct effects on FolioBeyond’s fixed income strategies, but we can’t ignore developments in AI, which may be more attenuated, but matter nevertheless.
Federal Reserve
Will they or won’t they? Some days it seems the only topic of discussion in the market is when the Fed will cut rates and by how much. President Trump has made it abundantly clear he believes they should have begun cutting rates long ago, and he has advocated for a Fed Funds rate that is as low as 1-2%, as compared to 4.5% currently. The last rate cut was made in December of 2024. Since then, the Fed has decided to wait for additional clarity on the impact tariffs may have on inflation, among other factors. That task has been made exceedingly difficult due to the ever-changing announcements about tariff levels and timing, and which countries and products will be subject to tariffs.
While inflation has remained stubbornly above the Fed’s 2% target, there has so far been relatively little tariff impact on final prices, because firms have absorbed much of the impact. That is almost surely a temporary phenomenon, and eventually we expect CPI and PPI will both begin to reflect tariff impacts before too long. In the meantime, however, there has been some emerging data on softness in the labor markets. This made headlines when the Bureau of Labor Statistics (BLS) issued very large downward revisions to prior job numbers. This further complicated the Fed’s calculus.
The BLS’s methods for collecting and synthesizing data have been challenged as politically motivated. This is almost certainly untrue. Having said that, there are significant deficiencies at the BLS that are well known. The department needs additional resources, and its data collection methods are at least 20 years behind the times. The response rates for the surveys it collects from businesses and households have seen declining and slowing response rates. Modern technologies, including AI (see below), could surely improve things. But firing the head of BLS as the Administration did will, in itself, do nothing to improve matters.
On balance, given the weak evidence of tariff pass-through and early signals about softening in labor markets, it seems likely that at some point in 2025 the Fed will make at least one cut. In a purely data driven world, they probably shouldn’t. But we don’t live in such a world, and political pressure is becoming intense.
The pertinent question is what happens then? It has been our contention that when the Ferd starts to cut short term rates longer term rates are likely to rise. This is a pattern that has been seen historically. It is exactly what happened in 2024 when the Fed cut short term rates by a cumulative 100 bps and treasury yields from 10 year- out to 30 year-maturity increased.
Consequently, even if the Fed does succumb to political pressure and begins to cut rates later this year, it is not likely to trigger a material decline in longer term rates that are relevant to our strategies. Both RISR and FIXP are much more sensitive to those economically significant rates, so whether the Fed cuts once or twice between now and year end, it is likely to have little impact on our funds and may even benefit RISR which in turn benefits FIXP given its current holding of RISR.
Tariffs
We talked last month about how the Trump Administration’s tariff policies have been difficult to figure out. Unfortunately, things have not gotten any better. As noted above, additional commodities have been subject to “global” tariffs, and tariffs have also been applied or threatened to serve non-economic geopolitical goals. For example, India was slapped with tariffs because it buys oil from Russia.
The fact remains, however, that tariffs will lead to rising prices for U.S. businesses and households for the foreseeable future. There are skeptics to argue either that tariffs will be absorbed by the exporting countries, or that the impacts will be so diffuse that it won’t amount to a measurable increase in domestic prices. History and common sense argue against both of these propositions. The tariffs that have been imposed and/or threatened are some of the largest and most disruptive since at least the 1930s. It is inconceivable they will not have broad impacts. After all, the fundamental mechanism of a tariff, the reason to use them at all, is to increase import prices so the quantity of imports declines. That is their raison d’etre.
If this is correct, then inflation will be supported by the tariffs, and it will be difficult for the Fed under Jay Powell or a subsequent chair installed by the President to engineer sharply lower rates unless they abandon their price-stability mission altogether. Paradoxically, that could cause a collapse in the value of the dollar which would tend to further exacerbate inflation.
There are no good outcomes from a tariff-based global trade war, only degrees of bad. There are court cases pending that go directly to the President’s authority to impose tariffs, which is power the constitution delegates to Congress. But these will take some time to work through the appeals process. In the meantime, expect further chaos and incipient inflation that could easily spiral out of control if the Administration’s worst impulses are unchecked.
AI
The AI revolution will have profound effects on the economy and society for years or even decades to come. It is very early days, but developments are coming at an exceptionally fast pace. The most immediate impact from the perspective of markets, however, is the need for massive investment in energy generation, data centers and ancillary technology. Sam Altman, head of Open AI recently suggested the needs of the industry could be as high as $7 trillion over the near term. That is an incredible sum and there is no precedent for how such an amount of capital could be raised.
So far, the AI revolution has been largely funded by venture capital, private equity, and strategic investment from companies like Microsoft. The public debt and equity market have played a limited role. But, to raise anything close to Altman’s ambitious goal the public markets will have to be brought into the mix. Traditionally, massive commercial construction projects have been funded largely with debt. If that model is to be applied to the construction of chip fabs, data centers and energy generation, it would require a debt raise equivalent to a significant fraction of the entire existing corporate bond market (approx. $11 trillion outstanding). This is likely to keep some degree of pressure on long-term bond yields for the next several years. As we said last month on this topic—stay tuned.
There is a prudent, well-established playbook for this type of environment. Protect your capital and look for investments that generate current cash income. Trying to trade the news or time the markets in such an environment is reckless in the extreme. 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] Liquified Natural Gas
[2] AGG: iShares Core U.S. Aggregate Bond ETF; SPY: SPDR S&P 500 ETF Trust; Invesco QQQ Trust; iShares 20+ Year Treasury Bond ETF; IEF: iShares 7-10 Year Treasury Bond ETF
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.
Morningstar classifies funds into categories based on similar investment objective and strategy. Morningstar percentile rankings are based on a fund's total return compared to its Morningstar Category of exchange-traded and open-end mutual funds. The highest percentile rank is 1 and the lowest percentile rank is 100.
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 7/31/2025, RISR was rated against the following number of Nontraditional Bond Funds over the following periods: 253 for the 3-year time period. RISR received 5 stars for those periods. Ratings for other share classes July 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.