RISR & FIXP Commentary for May 2025
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RISR Performance Summary
The FolioBeyond Alternative Income and Interest Rate Hedge ETF (ticker: RISR) returned 0.27% based on the closing market price (0.41% based on net asset value or “NAV”) in May. In comparison, the ICET7IN Index (US Treasury 7-Year Bond Inverse Index) returned 1.16% while the Bloomberg Barclays U.S. Aggregate Bond Index ("AGG") returned -0.72% 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.
As was the case in April, news and rumors about tariffs and trade deals dominated the economic landscape in May. The month began with the sobering, albeit not entirely unexpected, news that the US economy actually shrank in Q1. GDP fell by 0.3% quarter-over-quarter due to a decline in net exports related to firms and households attempting to acquire imported goods ahead of the imposition of import tariffs.[1] While the reported decline was something of a statistical anomaly, it nonetheless showed how the threat of a global trade war was already affecting behavior and decision-making.
At the same time, investors’ perception of inflation risks and even the credit-worthiness of the US was called into question. As a result, medium- and long-term interest rates have climbed steadily since the official announcement of tariff levels was made on what the Trump administration dubbed “Liberation Day” on April 2. Despite a stated goal of reducing interest rates, the chaotic rollout of the tariff plans has caused interest rates to climb materially. This is, of course, exactly opposite to the stated goals of the administration to bring down long-term rates..
Source: Bloomberg, LP
The uncertainty around the impact of tariffs was one of the primary factors the Federal Reserve Board pointed to when they left the Fed Funds rate unchanged at their May 8 meeting. This left the target rate at 4.5% where it has stood since December 2024. In the press conference following the non-announcement, Chair Powell emphasized that the Fed saw no urgency to reduce its target until it had much greater clarity about the impact of tariffs on prices and employment. He specifically stated the Fed would not move “pre-emptively” in anticipation of tariff impacts, but instead would wait for incoming data. They believe they can be patient because certain measures of inflation continued to moderate while labor markets remained reasonably robust. Jobless claims have ticked up fractionally, but overall payroll growth and unemployment at 4.2% are well within any reasonable notion of “full employment.”
Despite the increase in interest rates during the month, RISR’s NAV was surprisingly sticky. Prices for Mortgage-Backed Interest Only Securities (“MBS IOs”) held by the fund have traded in a fairly tight range for the past 6-8 weeks. Part of the reason for this is that mortgage rates have gradually been tightening to 10-year Treasury rates since Q1. This tends to reduce the prepayment dampening effect of higher risk-free rates. In addition, option adjusted spreads for MBS IOs have increased somewhat over the same time period, which further offsets any price increase that would otherwise occur in response to higher interest rates generally. Nevertheless, RISR is still ranked #2 out of 254 Alternative Bond Funds tracked by Morningstar for performance over the 3-year period ended 5/31/25.
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.
May was the fourth full month of performance since the Fund’s January 22 launch. For the month, FIXP was essentially flat, returning 0.02% (-0.01% based on NAV).
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 May, that amounted to a positive contribution to total returns of around 12.5 basis points bps or 1.45% annualized.
During the month, we made material reallocation to the portfolio as shown below:
These changes were driven by an increase in market implied credit risk, changes in the shape of the yield curve and an increase in the relative attractiveness of floating rate over fixed rate bonds. The FIXP allocation model updates target allocations on a daily basis, but actual reallocations are subject to minimum thresholds to avoid needless portfolio turnover for small model changes.
FIXP’s option holdings contributed minimally to May’s total return.
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
Growth Forecasts Reduced
The US economy has been remarkably resilient since the 2020 shock of the covid pandemic. Since 2021, real economic growth has actually exceeded the trend in place in the 30 years prior to the pandemic.
Source: Federal Reserve Bank of St. Louis, FRED
Many forecasters now believe this period of exceptional growth may be coming to an end. There are many reasons for this. There is no doubt about the boost to growth from the extraordinary fiscal response in terms of grants, loans and other government transfers in the wake of covid lockdowns. These began under the first Trump administration and were greatly expanded by the Biden administration. That stimulus is now gone.
Productivity from automation and technology has contributed less over time, and AI so far is mostly potential rather than an actual growth catalyst. Demographic factors—an aging population and declining birthrates—also lead to projections of slower growth.
These factors plus the more immediate impacts from tariffs and rising trade barriers were noted in a recent World Bank report that projected growth in the developed economies would slow to less than 2.5% over the balance of 2025 and would continue to moderate over the next several years, at least.
“[T]he developing world is becoming a development-free zone," said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. “It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades—from 6 percent annually in the 2000s to 5 percent in the 2010s—to less than 4 percent in the 2020s. That tracks the trajectory of growth in global trade, which has fallen from an average of 5 percent in the 2000s to about 4.5 percent in the 2010s—to less than 3 percent in the 2020s. Investment growth has also slowed, but debt has climbed to record levels.”[2]
At the same time, numerous factors have lately led to increases in inflationary expectations on the part of businesses and households. Obviously, the effect of tariffs on a broad range of industrial inputs and consumer goods are well understood to contribute to rising prices, despite tortured rationalizations by administration officials and the President himself. As if the country-targeted tariffs weren’t adding enough stress on markets and the economy, near the end of the month the President announced a doubling of tariffs on steel and aluminum.
It is impossible to say with certainty which tariffs will ultimately stick, and which will be struck down by courts or negotiated away. Most of the tariffs announced so far are in some stage of court challenge. Near the end of May, the US Trade Court, which has putative jurisdiction, ruled that the broad Liberation Day tariffs announced in April were illegal. However, this finding was immediately appealed and stayed by the US Court of Appeals, thus leaving everything in limbo. Ultimately it may end up at the US Supreme Court.
In the meantime, many businesses are raising prices, including the world’s largest retailer, Walmart. The company said that “the cost of tariffs was forcing [its] hand, and that it would hike prices on all sorts of goods later this [in May] the summer.” A UBS economist noted “if Walmart is doing it, everybody else is probably going to be doing it—if not already, they will be in the future.” The consensus among Wall Street economists is that consumer-price inflation rate to increase to about 3.3% over the next year, from 2.3% in April, should current tariff levels remain stable.[3] Household expectations for inflation are even higher, with a recent survey by Univ. of Michigan reporting an average forecast of 5.1% over the next year.
In light of this uncertainty markets have been lurching between despair and euphoria based on each new data point, or influential social media post.
Meet the New Fed, Same as the Old Fed
In an under-reported story, Fed Chair Jay Powell announced a review of the Fed’s policy framework, that explicitly recognizes that the era of extraordinarily low interest rates has come to an end.[4] The Fed’s current framework which is referred to as “Flexible Average Inflation Targeting” or FAIT allowed for inflation to run above or below the target (currently 2%) for an extended period so long as the goal was met on average over time. In practice, this meant that following a period of below-target inflation, the Fed would let inflation run “hot” as it did from 2020-2022 without any policy response. This was the source of the now infamous “transitory inflation” assessment that turned out to be badly mistaken, and which allowed inflationary expectations to get out of control.
This policy framework appears to be headed for the scrap-heap. Going forward, the Fed would seek much more aggressively to keep inflation expectations anchored at the target. If this new framework is adopted, it will mean the Fed would respond much more quickly and strongly to supply shocks that could elevate inflation expectations. It would essentially mean an upward bias to policy rates, to replace the benign neglect the Fed is often accused of practicing in recent years.
Is Stagflation Back on the Menu?
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. It is not a certainty, of course. Any number of exogenous shocks could affect the forecast. But investors should, at a minimum, consider the strong possibility of an extended period, several years potentially, where the old portfolio rules no longer work as they did before this new regime. The other “X-factor” is a growing realization that US sovereign debt can no longer be considered “risk-free.” This places downward pressure on the exchange value of the dollar, and upward pressure on the yields investors will demand to hold the massive amounts of new debt to be issued under the so-called Big Beautiful Bill the Trump administration is pushing through Congress.
Whether or not we actually get the projected increase in the federal debt anticipated from this budget and tax plan, investors can’t say they weren’t warned. Households and businesses in the US and throughout the developed world will have to adapt to a new global economic order. One that is very different from the post-WWII framework, with increased frictions to trade and migration, and growing disparities in wealth among nations, and changing economic priorities. Whether the tariffs or the Big Beautiful Bill are imposed or fail, significant changes are coming, and the next 25 years will be very different from the last 25.
There is a prudent, well-established playbook for this type of environment. Manage your capital and look for investments that has the potential to 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] Imports do not directly decrease GDP, but to avoid double counting in the national accounts, “exports less imports (X-I)” is added to the sum of consumption (C), investment (I) and government (G) spending, which already include spending on imported goods. GDP = C+I+G+(X-I). For any level of C+I+G, a reduction in net exports thus reduces reported GDP.
[2] https://www.worldbank.org/en/news/press-release/2025/06/10/global-economic-prospects-june-2025-press-release
[3] Wall Street Journal May 16, 2025. “Walmart’s Price Hikes Open Door to Increases From ‘Everybody Else”
[4] https://www.bloomberg.com/news/articles/2025-05-15/powell-signals-2020-fed-framework-language-on-chopping-block?sref=NORu1eII
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.
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.