RISR & FIXP Commentary for June 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 0.08% based on the closing market price (-0.27% based on net asset value or “NAV”) in June. In comparison, the ICET7IN Index (US Treasury 7-Year Bond Inverse Index) returned -1.59% while the Bloomberg Barclays U.S. Aggregate Bond Index ("AGG") returned 1.54% 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, may be worth more or less than their original cost and current performance 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 1.23%.
For standardized performance click here.
Global financial markets breathed a sigh of relief in June. Whereas macro-economic developments in April and May seemed ominous, several events from last month gave investors reason to pull back from the worst-case scenarios that had been circulating. This was not an “all clear” by any means. But the news was a bit more balanced, which gave markets an excuse to rally, taking back some of the selloff from prior months. Labor markets remained reasonably robust, with modest pressure on wages. The US and China trade talks pulled back from the brink, ever so slightly. A cease-fire in the short-lived war between Israel and Iran allowed oil prices to moderate from recent highs near $75 to below $65. Stock markets continued their relentless climb to end at all-time highs for the S&P500 as well as the tech-heavy NASDAQ.
But this was not enough to cause the Federal Reserve to cut short-term rates as many had been hoping. After their two-day meeting June 17-18, Fed Chair Powell made it clear that the uncertainty around tariffs was holding them back. Powell explicitly blamed tariff uncertainty for the Fed’s reluctance to cut, saying the Fed Funds rate would probably have been lowered already, if not for the uncertain pressure future tariffs could have on inflation. Furthermore, actual inflation remained stubbornly above the Fed’s 2% target, which gave them political cover to hold rates steady.
The speculation immediately turned to whether they might cut at the July meeting. This speculation seemed strange considering that the so-called “dot-plot” which indicates the forecasts for the future Fed Funds rate among members of the FOMC[1] actually turned more bearish.
The table shows the number of FOMC members expecting no cuts, one cut, two cuts, or more than two over the balance of 2025, and how that changed from the prior meeting in March. As the table shows, 3 FOMC members moved in the direction of fewer cuts, with a net move from 4 to 7 in the number of members expecting no cuts for the remainder of the year.
Investors’ continued bets on a July rate cut — despite overwhelming evidence to the contrary — may reflect their enduring optimism. Meanwhile, the two policymakers advocating for three cuts were widely believed to be signaling their interest in becoming the next Fed Chair.
RISR saw good capital inflows in June, more than reversing the small net redemption that occurred in May. Since the beginning of 2025, RISR has nearly doubled in size, growing from just under $80MM in Assets Under Management (AUM), to more than $154MM by the end of June. We are very grateful to our investors who have placed their confidence in our strategy.
RISR’s performance year-to-date has been highly consistent with the Fund’s design, and with our take on the proper positioning for the current environment: Low volatility; short duration; high current income. The chart below shows how that has played out so far this year. The white line shows RISR’s price performance. Despite a highly volatile rate environment, RISR’s price has traded in a fairly narrow range between 36 and a bit over 37. Meanwhile, current income, indicated by the orange line, has contributed meaningfully to total return, adding an additional roughly 3% YTD.
This performance has maintained RISR’s standing among the Alternative Bond Funds tracked by Morningstar where it holds the #3 percentile rank out of 257 funds for the 3-year period ended 6/30/25.
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 1.19% (1.21% based on NAV). The main contributors to this performance were the following: (i) A strong recovery in the shares of REM, a fund that invests in a broad spectrum of REIT shares. REM has had a volatile return profile over the course of 2025 so far, but it returned almost 5% in June, including dividends; (ii) TLT, the long-term treasury ETF produced in excess of 2.5%; and (iii) SJNK, a fund that holds short duration high-yield corporate debt returned 1.6%. In fact, on a total return basis, all of FIXP’s holding produced a positive return in June.
No major changes to the portfolio composition occurred in June, following significant reallocations in May. Recall that FIXP’s allocations are evaluated daily, based on the underlying multi-factor model, so that changes can occur at any time, and are not based on any fixed schedule.
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 and fund holdings click here.
FIXP’s option holdings contributed minimally to June’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
By now, most readers will have been subject to a mind-numbing batch of mid-year review and outlook missives. We won’t burden you here with another turgid tome. Instead, we will do a sort of “lightning round” of the big themes we will be watching, with particular emphasis on what could have the most significant effect on holders of RISR and FIXP. Here we go!
AI
The pace of developments in AI is truly stunning. The large frontier models such as ChatGPT, and Claude are gaining capacity at an extraordinary rate. However, very little of this progress has made a measurable impact on the actual economy or financial assets. So far, AI is being used to enhance productivity in a variety of contexts, including financial analysis, but its impact has been on the margins.
This will undoubtedly change, and AI is likely to have as much or even more economic impact as the internet did 20 years ago. But for purposes of fixed income investing, this will be a story for 2027-2030 and later. Stay tuned.
Tariffs
Discerning the actual goals of the Trump Administration’s tariff policies has been difficult to figure out, to say the least. The on-again/off-again announcements, the seemingly random nature of the magnitude and scope of the tariffs by country and product, the claims about deal progress that never seem to materialize, the ever-shifting deadlines, the endless tweets. It is enough to make any of our trading partners throw up their hands.
The most that can be said with confidence is that a broad array of tariffs will be imposed that are materially higher than the near-zero rates that have prevailed for the past several decades. That relatively open trading regime has produced enormous global benefits, including significant benefits to the US. But there have been costs, and those costs have not been shared equally. The new regime, for better or worse, is likely to see a reduction in global trade, and an increase in inflation.
The bottom line is that tariffs are inflationary. The idea that they are a one-time price shock that doesn’t result in inflation is pedantic and specious. Lots of “one-time” supply shocks have long-term inflationary impacts, and tariffs are no different. Only in an economist’s theoretical model do prices instantaneously and transparently adjust to supply shocks or the imposition of a tariff. In the real world the impacts are diffuse and unclear, and evolve and spread through the economy in the form of small or large price adjustments that occur over months, quarters or even years. That phenomenon looks and acts exactly like inflation, even if it doesn’t meet the narrow definition in some monetary textbook. We are going to have tariffs, and they will be inflationary. It is as simple as that.
Interest Rates and the Fed
The Fed cut short-term rates by 100 basis points in 2024, and at some point later this year or in early 2026, they will likely cut again. When they do, the impact on the real economy and on longer term interest rates is likely to be quite small. The reason the 10-year Treasury is almost 4.5% and the 30-year is almost 5% is NOT because the Fed Funds rate is set where it is. In fact, long-term rates rose last year even as the Fed was cutting short-term rates. We expect the same to happen going forward.
Short-term rates matter of course, but for most economically important decision, they don’t matter all that much. For business investing in plant and equipment, homebuilders and home-buyers, and other long-term decision makers, short term rates barely factor at all. They are very important to leveraged investors such as hedge funds and private equity.
The reality is that medium- and long-term rates are close to historic norms, despite the recency bias being exhibited by many people lacking historical perspective or those with an agenda. Even if the final tariff regime is fairly mild, it will have an inflationary impact that puts a floor on longer term rates, more or less where we are now. If broader or higher tariffs are imposed, then rates could go quite a bit higher. So we see two potential outcomes—rates stay more or less where they are now, or they go higher. Knowing what we know now, it is very difficult to envision a scenario with a materially flatter yield curve over the balance of this year and into 2026.
Housing
It has never been more difficult for the average American household to actually buy a house. Affordability is at historic lows, and that will not change with 50 or 100 bps of Fed cuts. High mortgage rates don’t help, but the central problem is housing cost due to a massive shortfall in new home construction. The US needs millions of housing units.
This shortage and the resulting affordability crisis is having all manner of knock-on effects in terms of household formation, family sizes, worker mobility and more. It also keeps rental rates elevated. As far as RISR is concerned, of course, this is a positive because it puts downward pressure on housing turnover and prepayments.
But this is a policy problem decades in the making and it will require hard choices that seem not to be coming from Washington or state capitals. The solutions being proposed by FHFA (e.g. including crypto-currency holdings for borrower net worth requirements) are not serious attempts to resolve this. At this point the US housing crisis is like the weather – everyone complains about it, but no one does anything.
Leverage, Credit and the Dollar
The amount of leverage in the economy has reached unprecedented levels. This includes households, financial assets and, obviously, the US government. So far, at least, creditors seem to be willing to continue lending. Corporate credit spreads are not particularly wide, and as noted, the US government is still able to borrow for 30 years at less than 5%. There are some troubling signs however. First, the foreign exchange value of the US Dollar continues to drop, and now is 1.16 to the Euro. Gold prices have risen inexorably. Foreign central banks have begun to reduce their holdings of Treasury securities.
The so-called Big Beautiful Bill that just passed will dramatically increase the borrowing needs of the US government. Over the next decade or so. Whatever thin reed of budget discipline existed in Washington is now gone. It seems unlikely this additional borrowing will be accommodated without a price concession, i.e., higher interest rates demanded by investors.
Consumer delinquencies seem under control, and the long expected commercial real estate refinance crisis keeps getting deferred. But the reality is both of these are being abetted by lenders willing, and encouraged by regulators, to defer and forbear non-performance. Ginnie Mae, for example has been quietly accommodating delinquent home mortgage borrowers to the tune of billions, and commercial real estate landers have for years now engaged in “extend and pretend” for real estate borrowers who are deeply under-water on commercial properties that are largely vacant or otherwise under-performing.
Is Stagflation Still on the Menu?
As we have suggested in prior commentaries, all of these factors come together to suggest the potential for a period of sub-par growth and above-trend inflation and interest rates. In other words – Stagflation. The US and other developed economies are at a difficult crossroads. The Trump Administration sees a global economic order it believes has been unfair to the US. One can agree with that or not. But they believe it, and that is what matters for decision making by investors.
Despite rhetoric to the contrary, the measures and policies espoused by this administration are oriented to produce higher interest rates, higher inflation and less global trade. There may be a way to thread the needle to achieve their aims without a slowdown, but it would not be easy even with a disciplined and experienced economic policy team. With all due respect to the current cabinet and staff, discipline and experience in global economic policy seem somewhat lacking.
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] Federal Open Market Committee. This is a group within the Federal Reserve that includes the Chairman, and the head of the NY Federal reserve Bank, plus a rotating group of other Fed members. The FOMC votes at regular meetings to set the Federal Funds rate, among other things.
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 6/30/2024, RISR was rated against the following number of Nontraditional Bond Funds over the following periods: 257 for the 3-year time period. RISR received 5 stars for those periods based on risk-adjusted returns. Ratings for other share classes June 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.