May Market Commentary
May proved to be a trying month overall for equity markets. The DJIA finished down 6.21%, its worst monthly performance since May 2010, while the S&P 500
fell 6.27%, its worst monthly loss since September 2011. Looming clouds over the domestic and international economy grew darker this month. Markets could not
shake the continued focus on European debt concerns; centered on the inability for Greece to form a government, the French election of Francois Hollande, and the
increasing severity of the funding pressures faced by both Spain and Greece in the debt markets.
Economic signals on the home front continue to disappoint. The “second” revision released by the Bureau of Economic Analysis showed that Gross Domestic
Product (GDP) expanded at a slower pace than the previous quarter, Q1 2012 1.9% vs. Q4 2011 3.0%. The Institute for Supply Management – Purchasing
Manager’s Index fell in May to 53.5 from 54.8 in April, still signaling expansion albeit at a slower pace (a reading above 50 indicates expansion, while a number
below 50 means contraction). The monthly payroll data for May came in significantly below consensus, 69,000 vs. 150,000, and the unemployment rate ticked
higher back up to 8.2%. Notes released mid-month from the April Federal Reserve meeting expressed “several member’s indicated of additional monetary policy
accommodation could be necessary if the economic recovery lost momentum or the downside risks to the forecast became great enough.” Chairman Ben Bernanke
noted that policy makers “remain entirely prepared” to take additional action if needed.
May QuantShares Commentary
Q2 continued in much the same fashion in May as the risk-off trade has been rewarded. Momentum and Low Beta strategies led the way in May as the markets
swooned. Low beta names drove performance in May much like April. This was evident with the QuantShares Market Neutral Anti-Beta Fund (BTAL) up
7.37% for the month, and up 12.54% over the last three months. QuantShares BTAL provides a diversified hedge that allows investors to target low-beta names
without taking on any additional sector bias (QuantShares BTAL is long the lowest beta names in each sector and short highest beta names in each sector).
Momentum strategies continued to gather steam in May after strong months in March and April, as evidenced by the QuantShares Market Neutral Momentum
Fund (MOM) up 4.22% for the month in a down market, and up 9.92% over the last three months. QuantShares MOM currently favors lower volatility/higher
growth stocks.
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. The
QuantShares Market Neutral High-Beta Fund (BTAH) underperformed down -8.72% for the month, and the QuantShares Market Neutral Value Fund
(CHEP) was down -1.94% for the month.
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 continues to swoon as we move into summer.
Performance as of 05/31/2012
Strategic ETFs
Month-End as of 05/31/2012 NAV
1-Mo
3-Mo
Value (CHEP)
Quality (QLT)
-1.94%
-0.25%
Size (SIZ)
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
3 Month T-Bill***
Tactical ETFs
Month-End as of 05/31/2012
Market Price (MP)
1-Mo
3-Mo
-7.43%
-0.67%
Since
Inception*
-2.68%
-4.17%
-2.38%
-1.20%
-0.96%
-2.70%
0.08%
-1.59%
-6.15%
0.00%
-2.24%
-3.77%
0.02%
NA
14.13%
0.03%
-8.32%
-1.90%
Since
Inception*
-2.60%
-4.17%
Annualized
Volatility
7.31%
6.00%
2.39%
-3.73%
1.94%
-3.69%
2.50/.99
2.50/.99
1.15%
-2.78%
0.04%
8.15%
1.05%
1.13%
2.97/.99
-1.59%
-6.15%
0.00%
-2.24%
-3.77%
0.02%
NA
14.13%
0.03%
20.47%
-
-
-
-
Month-End as of 05/31/2012 NAV
1-Mo
3-Mo
Anti-Beta (BTAL)
Momentum (MOM)
High Beta (BTAH)
Anti-Momentum (NOMO)
7.37%
4.23%
-8.72%
-5.22%
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 05/31/2012
Market Price
1-Mo
3-Mo
12.54%
9.92%
-13.92%
-10.21%
Since
Inception*
-3.86%
5.02%
-4.11%
-9.33%
7.63%
4.41%
-8.64%
-5.18%
-1.59%
-6.15%
-2.24%
-3.77%
NA
14.13%
0.00%
0.02%
0.03%
Quarter End
as of 03/31/2012
Since Inception*
NAV
MP
Gross**/Net
10.71%
8.94%
-12.68%
-10.13%
Since
Inception*
-4.07%
4.98%
-4.03%
-9.29%
Annualized
Volatility
18.68%
8.83%
17.97%
9.16%
Gross**/Net
-3.98%
-2.12%
9.63%
-0.62%
-4.23%
-1.91%
8.59%
-0.86%
1.92/.99
2.79/.99
3.27/.99
2.07/.99
-1.59%
-6.15%
-2.24%
-3.77%
NA
14.13%
20.47%
-
-
-
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 Hedge Fund Research Database. Negative correlation is a relationship between two variables in which one variable
increases as the other decreases. 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.