August Market Commentary
August economic data provided a mixed picture; equity markets seemed to shrug off much of the negative sentiment and pushed to a higher close for the month. The Dow
Jones Industrial Average (DJIA) finished up 1.04% while the S&P 500 closed the month up 2.25%. The Institute for Supply Management (ISM) Purchasing Managers
Index (PMI) registered 49.6 for August, a decrease of 0.2 from July, indicating contraction for the third consecutive month and the lowest reading since July 2009. The
August report on July payroll showed that employers added 163,000 jobs for the month, the highest increase since February. Even with the positive jobs surprise, the
unemployment rate ticked higher to 8.3%, which stands at a five month high.
The August Commerce Department’s read on US Gross Domestic Product (GDP) noted higher growth in the second quarter 1.7% vs. a 1.5% initial estimate. Slowing
growth for the second straight quarter show headwinds are taking their toll on US consumers, consumer spending accounts for roughly 70 percent of US GDP. Drought
conditions have pushed agricultural commodity prices higher, and increases in fuel costs have proved taxing on the consumer’s wallet. After an unexpected increase in the
Consumer Confidence in the US in July, August registered the lowest reading since January as consumer sentiment towards their finances soured. The Federal Open
Market Committee minutes from their July 31-Aug. 1 meeting showed many members were prepared to take further action “fairly soon”, and said “a new large scale assetpurchase program could provide additional support for the economic recovery.”
Headwinds continue to persist outside the US, and these problems have global economic ramifications. Tensions in the Middle East have flared; fighting in Syria and
escalating rhetoric from Israel and Iran threaten neighbor states which provide almost a third of the world’s oil. Europe continues to experience fits and starts, but seem
committed to working towards a solution for the broad issues that face the region.
August QuantShares Commentary
As factor performance reversed in August we saw some new leadership. High beta names drove returns in August as evidenced by the QuantShares Market Neutral
High-Beta Fund (BTAH) finished up 3.93%. High beta and Low beta names continue to jockey for market leadership as the year moves forward. Both small cap and
value strategies were among the strongest performers in August. The QuantShares Market Neutral Size Fund (SIZ) closed up 1.27% while the QuantShares Market
Neutral Value Fund (CHEP) finished August up 1.01%. Small Cap strategies and Value strategies have spent much of 2012 out of favor.
Momentum strategies sold off in August, as QuantShares Market Neutral Momentum Fund (MOM) was down -2.35% for the month. Twelve month price momentum
continues to be one of the top performing factors for calendar year 2012. QuantShares MOM performance has been persistent in 2012, up 7.80% for the year through
August, and up 5.52% since inception.
The quality trade, which was the best performing investment style of 2011, has continued to lag the broader market advances as risk appetite has grown in 2012. Quality
has been among the worst performing factors year to date as evidenced by the QuantShares Market Neutral Quality Fund (QLT) down -0.04% for August and -3.96%
for the year.
The QuantShares Market Neutral Anti-Beta Fund (BTAL) can provide 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 the highest beta names in each sector). QuantShares BTAL has a
negative correlation (0.86) to the S&P 500, and has provided a nice hedge during heightened uncertainty in the last 6 months, up 10.39% vs. 4.14% for the S&P 500.
Performance as of 08/31/2012
Strategic ETFs
Month-End as of 08/31/2012 NAV
1-Mo
3-Mo
Value (CHEP)
Quality (QLT)
1.01%
-0.04%
Size (SIZ)
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
3 Month T-Bill***
Tactical ETFs
Month-End as of 08/31/2012
Market Price (MP)
1-Mo
3-Mo
1.35%
-2.18%
Since
Inception*
-1.38%
-6.26%
1.22%
-0.09%
1.27%
-0.48%
-0.40%
0.76%
2.43%
0.01%
2.01%
7.61%
0.02%
NA
22.82%
0.04%
1.34%
-2.27%
Since
Inception*
-1.29%
-6.34%
Annualized
Volatility
7.37%
5.78%
-1.70%
-5.62%
-1.70%
-5.62%
2.50/.99
2.50/.99
1.27%
-0.48%
-0.44%
7.70%
0.28%
0.28%
2.97/.99
0.76%
2.43%
0.01%
2.01%
7.61%
0.02%
NA
22.82%
0.04%
18.84%
-
-
-
-
Month-End as of 08/31/2012 NAV
1-Mo
3-Mo
Anti-Beta (BTAL)
Momentum (MOM)
High Beta (BTAH)
Anti-Momentum (NOMO)
-3.74%
-2.35%
3.93%
1.64%
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
3 Month T-Bill***
Quarter End as of
06/30/2012
Since Inception*
NAV
MP
Month-End as of 08/31/2012
Market Price
1-Mo
3-Mo
-1.91%
0.47%
0.88%
-1.85%
Since
Inception*
-5.69%
5.52%
-3.26%
-11.01%
-3.79%
-2.92%
2.30%
1.59%
0.76%
2.43%
2.01%
7.61%
NA
22.82%
0.01%
0.02%
0.04%
Quarter End
as of 06/30/2012
Since Inception*
NAV
MP
Gross**/Net
-1.83%
0.16%
0.59%
-2.03%
Since
Inception*
-5.82%
5.15%
-3.46%
-11.13%
Annualized
Volatility
17.73%
9.46%
17.40%
9.83%
Gross**/Net
-3.21%
4.04%
5.11%
-8.47%
-3.13%
4.28%
-4.87%
-8.52%
1.92/.99
2.79/.99
3.27/.99
2.07/.99
0.76%
2.43%
2.01%
7.61%
NA
22.82%
18.84%
-
-
-
0.01%
0.02%
0.04%
-
-
-
-
*= 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.