April Market Commentary
Following the solid gains in the equity markets during the first quarter, April proved more difficult with the major indexes posting their worst monthly returns of
the year. The DJIA finished April flat (0.01%), while the S&P 500 was down (-0.75%), but both remain soundly higher as of 4/30/2012. April’s economic data
was mixed providing some positive surprises as well as some signals that the economy is softening. The Institute for Supply Management unexpectedly picked up
in April rising to 54.8 from 53.4 in March (a reading above 50 indicates expansion, while a number below 50 means contraction). Business spending cooled in the
first quarter, consumer spending picked up, and strong demand for automobiles helped boost the gauge, as we saw sales for autos at their fastest pace in four years.
The Commerce Department’s Q1 Gross Domestic Product (GDP) advance estimate noted a 2.2% expansion, moderating from a 3.0% reading in Q4 2011. Midmonth Federal Reserve Chairman Ben Bernanke expressed his comfort with the current Fed policy stance, but left the door ajar for additional bond buying if the
economy deteriorated.
Europe continues to send troubling signals to the markets. S&P downgraded Spain for the second time this year and kept their outlook negative citing “weaker than
expected economic outlook and rising risks to the banking system”. Both Spain and Italy have seen their borrowing costs inch higher as they try to perform a
delicate balancing act of reducing their debt burdens and propelling their stagnating economies. Continued flare ups from Europe will weigh on global markets as
they try to regain stable footing.
Closer to home we have seen campaign rhetoric pick up as we move ever closer to election season. Lingering questions remain over the constitutionality of
“Obamacare”, government spending, and the federal deficit. Where Washington and politicians seem comfortable putting off finding answers for another day, or
another congressional session, the U.S. public is growing increasingly tired of the political rhetoric emanating from both parties.
April QuantShares Commentary
Momentum strategies gained additional strength in April, as evidenced by the QuantShares Market Neutral Momentum Fund (MOM) up 3.98% for the month,
and up 5.32% over the last three months. QuantShares MOM currently favors lower volatility/higher growth stocks. Equity markets pivoted in April and we saw
low beta names drive performance. This was evident with the QuantShares Market Neutral Anti-Beta Fund (BTAL) up 3.34% in April. QuantShares BTAL
provides a diversified hedge that allows investors to target low-beta names without taking on any additional sector bias (QuantShares BTAL fund is long the
lowest beta names in each sector and short highest beta names in each sector).
Anything perceived as “risky” had a difficult month; this was especially true for high beta stocks and cheap stocks which tend to have a high beta bias. Both the
QuantShares Market Neutral High-Beta Fund (BTAH) and the QuantShares Market Neutral Value Fund (CHEP) underperformed down -4.18% and -3.08%
respectively.
A continued risk averse environment tends to favor quality stocks. The QuantShares Market Neutral Quality Fund (QLT) (long high quality stocks and short
low quality stocks, based on Return on Equity and debt-to-equity ratios) has a negative correlation (-0.80) to the equity markets, which may provide a nice hedge if
the market starts to swoon as we move into summer.
Performance as of 04/30/2012
Strategic ETFs
Month-End as of 04/30/2012 NAV
1-Mo
3-Mo
Value (CHEP)
Quality (QLT)
-3.08%
-0.21%
Size (SIZ)
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
3 Month T-Bill***
Tactical ETFs
Month-End as of 04/30/2012
Market Price (MP)
1-Mo
3-Mo
-5.27%
-0.75%
Since
Inception*
-0.76%
-3.93%
-2.13%
0.71%
0.00%
-1.03%
1.05%
-0.36%
-0.58%
0.00%
1.66%
7.03%
0.02%
NA
21.60%
0.03%
-5.43%
-0.82%
Since
Inception*
-0.23%
-3.00%
Annualized
Volatility
7.31%
6.12%
2.39%
-3.73%
1.94%
-3.69%
2.50/.99
2.50/.99
0.08%
0.20%
1.21%
8.41%
1.05%
1.13%
2.97/.99
-0.36%
-0.58%
0.00%
1.66%
7.03%
0.02%
NA
21.60%
0.03%
21.17%
-
-
-
-
Month-End as of 04/30/2012 NAV
1-Mo
3-Mo
High Beta (BTAH)
Momentum (MOM)
Anti-Beta (BTAL)
Anti-Momentum (NOMO)
-4.18%
3.98%
3.34%
-3.67%
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
3 Month T-Bill***
Quarter End as of
03/31/2012
Since Inception*
NAV
MP
Month-End as of 04/30/2012
Market Price
1-Mo
3-Mo
-2.61%
5.00%
0.92%
-5.42%
Since
Inception*
5.05%
0.76%
-10.46%
-4.34%
-3.26%
3.94%
3.45%
-3.71%
-0.36%
-0.58%
1.66%
7.03%
NA
21.60%
0.00%
0.02%
0.03%
Quarter End
as of 03/31/2012
Since Inception*
NAV
MP
Gross**/Net
-2.75%
2.60%
-0.91%
-6.52%
Since
Inception*
5.05%
0.55%
-10.87%
-4.34%
Annualized
Volatility
18.34%
8.90%
19.33%
9.17%
Gross**/Net
9.63%
-2.12%
-3.98%
-0.62%
8.59%
-1.91%
-4.23%
-0.86%
3.27/.99
2.79/.99
1.92/.99
2.07/.99
-0.36%
-0.58%
1.66%
7.03%
NA
21.60%
21.17%
-
-
-
0.00%
0.02%
0.03%
-
-
-
-
*= Inception 9/7/11 for (MOM, NOMO, QLT, SIZ); Inception 9/13/11 for (BTAH, BTAL, CHEP)
**= Gross expense ratio includes dividend expense on short positions. Dividend income earned on long positions and interest earned on cash collateral are not reflected in the ratio. This income serves to offset the dividend
expense on short positions.
***= Performance starting 9/7/2011
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted.
Investment and principal value fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Returns less than one year are not
annualized. Since the Funds are new, the Operating expenses are based on first year anticipated Assets Under Management growth. FFCM has contractually agreed to waive
fees and expenses to limit net expenses from exceeding 0.99% until August 31, 2012.
Company Overview:
QuantShares designs and manages Market Neutral ETFs to provide exposure to well-known equity factors such as Momentum, Value, Quality, Beta and Size.
QuantShares Market Neutral ETFs are the first ETFs that have the capability to short physical stocks (as opposed to derivatives) that passively track indexes. Our
ETFs offer investors a diversifying asset that is both highly liquid and fully transparent. The ETFs are designed to generate spread returns, diversify risk and
reduce volatility. Value, Size and Quality tend to be more strategic in nature and provide strong risk-adjusted returns; Beta and Momentum are more tactical and
allows investors to hedge or express short term investment convictions. QuantShares Market Neutral ETFs provide a liquid alternative to help dampen volatility
and enhance the risk return profile of an investment portfolio.
Disclosures:
Before investing you should carefully consider the Fund’s investment objectives, risks, charges, and expenses. This and other information is in the prospectus, a
copy of which can be obtained by visiting the Fund’s website at www.quant-shares.com. Please read the prospectus carefully before you invest. Foreside Fund
Service, LLC, Distributor.
Shares are not individually redeemable and can be redeemed only in Creation Units. The market price of shares can be at, below or above the NAV. Market Price
returns are based upon the midpoint of the bid/ask spread at 4:00PM Eastern time (when NAV is normally determined), and do not represent the returns you would
receive if you traded shares at other times. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some
performance results reflect expense subsidies and waivers in effect during certain periods. Absent these waivers, results would have been less favorable.
Risks: There is no guarantee that the funds will reach their objective. An investment in the Funds is subject to risk including the possible loss of principal amount
invested. See prospectus for specific risks regarding each Fund. There is a risk that during a “bull” market, when most equity securities and long only ETFs are
increasing in value, the Funds’ short positions will likely cause the Fund to underperform the overall U.S. equity market and such ETFs. The Funds may not be
suitable for all investors. Short selling could cause unlimited losses, derivatives could result in losses beyond the amount invested, and the value of an investment
in the Fund may fall sharply.
Beta is a measure of an asset’s sensitivity to an underlying index. Long is purchasing a stock with the expectation that it is going to rise in value. Short is selling
stock with the expectation of profiting by buying it back later at a lower price. HFRI Fund Weighted Composite Index is a global, equal-weighted index of over
2,000 single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees, and have a minimum of $50 Million under management
or a twelve (12) month track record of active performance. The HFRI Fund Weighted Composite Index does not include Funds of Hedge Funds. Russell 1000
Index measures the performance of approximately 1000 of the largest companies in the U.S. equity market. DJIA – Dow Jones Industrial Average is a price
weighted average of 30 significant stocks traded on the NYSE and NASDAQ. S&P 500 is an index of 500 large cap common stocks actively traded on the NYSE
and NASDAQ. One cannot invest directly in an index.