September Market Commentary
September marked another strong month in the equity markets. Both the Dow Jones Industrial Average (DJIA) and the S&P 500 finished the month up, 2.75% and 2.58%
respectively. The equity markets seemed to shrug off increasing uncertainty both home and abroad, and marched to higher finish for the third quarter. The Commerce
Department’s final read on US Gross Domestic Product (GDP) noted slower growth in the second quarter, 1.3% annual rate vs. a 1.7% estimate, which is the lowest since
the third quarter of 2011. Consumer and business spending have begun to slow; drought conditions have pushed agricultural commodity prices higher, and increases in
fuel costs have proved taxing on the consumer’s wallet. The Commerce Department reported a drop of 13.2% for durable goods for August, the largest drop since January
of 2009. The Institute for Supply Management (ISM) Business Survey registered 49.7 for September, an unexpected contraction for the first time in three years, down
from 53 in August. A reading of 50 is the dividing line between contraction and expansion.
We continue to face elevated joblessness, with unemployment exceeding 8% for the 43rd consecutive month. The Federal Reserve announced in early September further
accommodation with open-ended purchases of $40 billion in mortgage debt a month in an effort to reduce unemployment and boost economic growth. Lingering concerns
surround the outcome of the presidential election and the “fiscal cliff”, more than $600 billion in automatic tax increases and spending cuts if Congress doesn’t act.
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 seems
committed to working towards a solution for the broad issues that face the region.
September QuantShares Commentary
Value strategies, after spending much of 2012 out of favor, have been able to string together a couple of months of positive performance. Valuation has begun to matter
again, as evidenced by the QuantShares Market Neutral Value Fund (CHEP) finishing September up 0.22%, after a solid August return of 1.01%. Small Cap strategies
continue to try to find footing in 2012, spending most of the year out of favor, September was no different as the QuantShares Market Neutral Size Fund (SIZ) closed
down -0.81%.
Momentum strategies continued to sell off in September, as QuantShares Market Neutral Momentum Fund (MOM) was down -1.44%% for the month. The
QuantShares Market Neutral Anti-Momentum Fund (NOMO) has been able to capitalize on the August/September sell-off in momentum strategies finishing September
up 0.68%, after a solid 1.64% August. High beta and Low beta names continue to jockey for market leadership as the year moves forward. For September both the
QuantShares Market Neutral High-Beta Fund (BTAH) and the QuantShares Market Neutral Anti-Beta Fund (BTAL) finished down -0.08% and -0.43% respectively.
Increasing uncertainty surrounding both a presidential election and the “fiscal cliff” may provide a backdrop for increased volatility as we move into Q4. QuantShares has
a couple of strategies to take advantage of the heightened market uncertainty. Both the QuantShares Market Neutral Anti-Beta Fund (BTAL) and the QuantShares
Market Neutral Quality Fund (QLT) have negative correlations to the S&P 500. QuantShares BTAL has provided a nice hedge for equity exposure with a negative
correlation (0.85) to the S&P 500, since inception (9/13/2011). In addition, Quality strategies tend to outperform in uncertain markets as there is reach for stability;
QuantShares QLT has a negative correlation of (0.45) to the S&P 500, since inception (9/7/2011) and has helped smooth out some of the volatility associated with
increased market uncertainty.
Performance as of 09/30/2012
Strategic ETFs
Month-End as of 09/30/2012 NAV
Month-End as of 09/30/2012
Market Price (MP)
1
3
1
Since
Month
Month
Year
Inception*
0.01%
-0.43%
-2.80%
-1.28%
-2.39%
-3.14%
-10.90%
-8.58%
Quarter End as of 09/30/2012
Since Inception*
Annualized
NAV
MP
Gross**
Volatility
/ Net
7.40%
-1.16%
-1.28%
2.50/.99
5.68%
-8.46%
-8.58%
2.50/.99
Value (CHEP)
Quality (QLT)
1
Month
0.22%
-2.35%
3
Month
0.56%
-3.01%
1
Year
-1.59%
-9.76%
Since
Inception*
-1.16%
-8.46%
Size (SIZ)
-0.81%
-1.49%
0.81%
-1.21%
-0.89%
-1.61%
0.97%
-1.33%
7.72%
-1.21%
-1.33%
2.97/.99
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
3 Month T-Bill***
0.76%
2.57%
0.01%
2.01%
6.31%
0.02%
5.55%
30.05%
0.04%
NA
25.98%
0.04%
0.76%
2.57%
0.01%
2.01%
6.31%
0.02%
5.55%
30.05%
0.04%
NA
25.98%
0.04%
18.42%
-
-
-
-
Tactical ETFs
Month-End as of 09/30/2012 NAV
Month-End as of 09/30/2012
Market Price
3
1
Since
Month
Year
Inception*
-2.98%
-10.69%
-6.22%
-0.39%
7.04%
3.87%
1.65%
3.71%
-3.30%
-2.02%
-12.94%
-10.36%
Quarter End as of 09/30/2012
Since Inception*
Annualized
NAV
MP
Gross**
Volatility
/ Net
17.67%
-6.10%
-6.22%
1.92/.99
9.90%
4.00%
3.87%
2.79/.99
17.36%
-3.34%
-3.30%
3.27/.99
10.28%
-10.41%
-10.36%
2.07/.99
Anti-Beta (BTAL)
Momentum (MOM)
High Beta (BTAH)
Anti-Momentum (NOMO)
1
Month
-0.43%
-1.44%
-0.08%
0.68%
3
Month
-2.98%
-0.04%
1.86%
-2.11%
1
Year
-10.60%
7.30%
2.61%
-12.81%
Since
Inception*
-6.10%
4.00%
-3.34%
-10.41%
1
Month
-0.43%
-1.21%
0.17%
0.87%
HFRI: Fund Weighted Composite Index
Russell 1000 Index***
0.76%
2.57%
2.01%
6.31%
5.55%
30.05%
NA
25.98%
0.76%
2.57%
2.01%
6.31%
5.55%
30.05%
NA
25.98%
18.42%
-
-
-
3 Month T-Bill***
0.01%
0.02%
0.04%
0.04%
0.01%
0.02%
0.04%
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 (i) to waive
its management fees and reimburse expenses until October 31, 2013 to the extent necessary to prevent the Fund’s net operating expenses from exceeding 1.49% and (ii) voluntarily
to waive its management fees and reimburse expenses until further notice to the extent necessary to prevent such expenses from exceeding 0.99%.
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.