Dynamic Alpha Macro Fund (DYMIX) – December 2024 Overview

Welcome to the Monthly Summary

The Dynamic Alpha Macro Fund aims to outperform its benchmark by employing a dual-strategy approach. The fund combines a fundamental global macro strategy with a balanced portfolio of U.S. equities. This blend of non-correlated assets is designed to manage risk and generate what we refer to as “Dynamic Alpha.”

The portfolio is comprised of U.S. Equity ETFs, a global macro futures strategy, and short-term fixed income. The global macro strategy provides long/short exposure to over 40 diverse and non-correlated markets, including currencies, metals, energy, commodities, and financial indices.

We are committed to our shareholders, keeping you informed and ensuring our strategies align with the ever-evolving financial landscape. If you have any questions, feel free to contact us at info@DynamicWG.com.

peRFORMANCE METRICS

* Gross Expense Ratio: 1.98%
* Fund inception: 7/31/2023
Performance data shown represents past performance and is not a guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Updated performance information and daily net asset value per share (“NAV”) is available at no cost by calling toll-free 1-833-462-6344.

Dynamic Alpha Macro Fund PORTFOLIO OVERVIEW

Contributors:

• Long:   Corn
• Short: Sugar

Detractors:

• Long:   2-Year Treasuries, British Pound, Japanese Yen, Strategic Equities
• Short: Feeder Cattle

Current Positions (as of 12/31/2024):

• Long:   2-Year Treasuries, British Pound, Japanese Yen, Corn, Strategic Equities
• Short: Feeder Cattle, Sugar

Macro Observations and Market Analysis

This Month’s Performance

We proudly announce that Morningstar® has ranked the Dynamic Alpha Macro Fund as the #1 position in the Macro Trading category for 2024 (60 funds)!  Leading the category for 2024 is an indication that our process and methodology is working and that DYMIX can be a valuable tool for most investors and financial advisors.  Catherine Ayers-Rigsby, president of Advisors Preferred, said, “We are thrilled that DYMIX is being recognized so quickly by the industry. The Dynamic Wealth Group is an impressive team that brings a refreshing approach and real results to the investing community.” 

For the month of December, our global macro strategy slightly underperformed the S&P 500 Index (-2.58% vs -2.38%).  For the full year 2024 the fund gained 18.37% versus the S&P 500 at 25.02% and the S&P Target Risk Growth Index at 10.73%.  The S&P Target Risk Growth Index targets a 60:40 stock bond mix.  The fund’s outperformance relative to that index shows that an allocation to DYMIX can be additive to an overall diversified portfolio.  As mentioned in previous letters, our approach aims to provide equity-like returns in a non-correlated fashion. Providing differing returns in the same time frame is a testament to the strategy’s diversifying effects on an investment portfolio over time.

The equity side of the strategy performed in line with the overall market, so it was down slightly for the month. On the global macro side, Corn and Sugar were standouts but were offset by losses in the Interest Rate and Currency groups and a small loss in Feeder Cattle. Altogether, the strategy kept pace with the benchmark for the month. Over the long term, our approach aims to produce less downside deviation than the broad market, but its performance may vary significantly in any given month.

As you read the monthly commentary, our Global Macro Manager provides his thoughts on the direction of the US Dollar and other influences of the incoming Trump administration on the 40+ markets we participate in on the global macro side. 

New Plaza Accord

One of the highest conviction market views that occurred after the election of Donald Trump is the notion that the U.S. dollar will continue to appreciate. There are two prevailing reasons behind the market’s take: 1) higher US growth implies fewer Fed cuts and hence higher real interest rate support for the USD; and 2) tariffs equate to a stronger dollar all else equal, as foreign currencies depreciate to offset the tariff.

We are taking the other side of this market view. Incoming Treasury secretary Scott Bessent has stated, “We are at a key geopolitical moment. I see the need for a grand economic reordering. Something going back to Bretton Woods or the Treaty of Versailles. There is a very good chance that we are going to have that over the next four years. I want to be part of this.” Normally quotes by Treasury secretaries are dry and not memorable; this on the other hand is the sort of thing to sit up and take notice of.

Bessent understands that we are at the end of the current system, and a few decades of imbalances appear likely to be dealt with in the next few years. It is worth parsing his words. A new economic world will need more balanced trade and smaller current account deficits in the U.S. It will require rebuilding manufacturing capacity in the U.S. with a mix of labor and technology. That requires a sustained depreciation of the dollar, not an increase! A “Mar-a-Lago Accord” implies a multi-year bear market in the dollar, possibly coordinated with major foreign governments, much as the 1985 Plaza Accord was. The U.S. dollar is meaningfully overvalued against the euro, British pound, and other developed market currencies, and grossly overvalued against the Japanese yen. The dollar has been in a structural bull market since 2011. Normally these long-term swings in the dollar last 7-10 years – this one has gone on for 14. No one sees a weak dollar ahead, let alone the potential for a secular bear market in the dollar. At potential turning points, that’s the way it must be.  

Year-end Portfolio Recap

Markets have hit extremes. We are positioned for (and in some cases poised to position for) the unwinding of these extremes.

Agriculture

In grain markets, supply shortages have driven the cattle complex to prices that create demand destruction for consumers. The wealthiest Americans account for the lion’s share of consumer spending. But even a rich person can only eat so many steaks – the demand for red meat is likely to continue to soften at these prices. At the other extreme, corn is cheap, after a global glut was produced in the last two years. Already, demand is picking up for exports from the Western Hemisphere. We are long corn and short feeder cattle. This may seem like a spread trade, but the connection between corn as an input into the cattle supply chain is tenuous as an explanation for a spread; it’s better to view these as two distinct trades.

Currencies

We continue to have a short dollar thesis, as expressed in the first part of this letter. After a 14-year bull market in the dollar, and a hawkish recent turn by the Fed, almost everyone is bullish the dollar. We believe we are at or near an important inflection point, one that could very well lead into the next secular bear market for the dollar. The Bank of Japan (BoJ) expects to continue to slowly hike rates – it’s currently the only major central bank in a hiking campaign. Even if large employers in Japan slow their wage hikes from the 5% agreement in 2024, pay inflation finally seems to be entrenched in Japan. Wages should pass through to prices moving forward in a manner that eluded Japan throughout the 1990-2020 stagnation.

Interest rates

Since the economy has withstood the Fed’s rapid rate hikes in 2022 for the last two full years, the general assumption is that the economy can thrive under these higher rates. Under the hood, warning signs continue to build, much as they did from 2006-2007 ahead of the financial crisis. Full time jobs continue to be destroyed, and small businesses cannot continue to finance their operations at 10%+ rates – that’s not sustainable. Any economic downturn would likely see the Fed cut rates ten times or more, instead of the one cut that’s priced in for 2025. We are long 2-year Treasuries.

Equities and Metals

There are a few positions that we do not have in the portfolio today, but which could likely appear in our portfolio soon. The S&P 500 has finally turned into a full-fledged bubble, and though we have taken a couple of failed attempts at shorting the market in the last year, the trade is more appealing than ever. We will attempt to short the broad market again soon.

Gold and silver have corrected after an overextended move into October. These markets should complete their corrections in Q1 2025. A long gold position is as close to a “win/win” investment as you can find in the current environment. If inflation takes off again gold will most likely rise, and in a downturn where the Fed cuts aggressively and real interest rates fall rapidly, gold will most likely continue to grind higher, breaking the $3,000 barrier. The problem is that every investment banking research report is currently bullish gold, and thus we need speculators who purchased the yellow metal in September and October to get washed out of their positions. We look to repurchase our precious metals futures positions early in 2025.

Copper has languished due to China’s continued housing bust. Half of global copper demand comes from China.

_{Source: Alpine Macro and S&P GSCI. The regression fit is based on the historical
correlation between industrial metals prices, the U.S. dollar, and Chinese home sales.}

The chart above is like déjà vu: we saw a similar break between prices and fitted fundamentals in the gold chart that showed a huge gap between gold and real rates in 2022 and 2023. Many research firms thought that meant gold would crash; instead, the gap got wider as gold soared – the fundamental links were changing as EM central bank buying trumped real interest rates.

Similarly, the chart seems to imply copper must crash. But what if the link is no longer to Chinese home sales but rather to the S-curve adoption of green tech (EV, solar, etc.)? That’s our bet. 

We hope you all had a fantastic New Year! Please feel free to reach out if we can provide additional clarification on specific ideas or the portfolio more broadly.

As always, we continue to be nimble. If the data and/or our views change, we can pivot our positioning and find other trades within the 40+ markets we have available. This is also why we maintain a strategic allocation to U.S. equities in our overall fund strategy, balancing a buy-and-hold approach with active global macro long/short positions.  We appreciate your continued trust and partnership and look forward to updating you on our progress in the coming months.

OUR dynamic alpha macro fund LONG/SHORT INVESTMENT UNIVERSE

The list above is not all inclusive.

CONTACT INFORMATION for the Dynamic Alpha Macro Fund

If you’re an advisor or investor interested in learning more about the Dynamic Alpha Macro Fund, you can get in touch through the “Contact Us” page on their website at https://dynamicalphafunds.com/contact-us/. Alternatively, you can directly email your inquiries to info@dynamicalphafunds.com.

IMPORTANT RISK INFORMATION

Disclaimers:

• An investor should consider the investment objectives, risks, charges, and expenses of the Dynamic Alpha Macro Fund carefully before investing. The Fund and summary prospectus contain this and other information about the Fund and should be read carefully before investing. To obtain a prospectus, please call 1-833-462-6344 or access online at https://regdocs.blugiant.com/dynamic-alpha-macro/
• Expense ratios shown reflect gross/net fund operating expenses including acquired fund fees and expenses as per the Fund’s prospectus dated November 1, 2024. The net expense ratio reflects a contractual fee waiver/reimbursement that is in place until 10/31/2025. Absent such waiver, performance and returns would have been lower. The Adviser may discontinue the waiver after the expiration date. Investors should review the Fund’s prospectus for a complete discussion of fees and expenses.
• All investment strategies and investments involve the risk of loss. Nothing within this communication constitutes financial, legal, tax, or other advice, nor should any investment or strategy be undertaken without fully understanding all the risks associated with such an investment or strategy.
• The views, opinions, or advice contained above are solely those of the author and do not necessarily reflect those of Ceros Financial Services LLC or its affiliates. The strategies and/or investments referenced may not be appropriate for all investors, as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
• Ceros Financial Services, Inc., member FINRA/SIPC, distributes the funds and is a commonly held affiliate of Advisors Preferred. Advisors Preferred and Ceros are not affiliated with the funds’ subadvisor, Dynamic Wealth Group, which serves as the subadvisor to the Dynamic Alpha Macro Fund.
• Any performance figures reported are historical and should not be taken as an indication of future performance. Investment in the financial markets involves risk, and there is always the potential of losing money when investing in securities.
• The views expressed about market trends, including opinions on bonds, equities, gold, crude oil, or any other market, are based on current market conditions and are subject to change without notice. These views should not be construed as a recommendation for any specific investment or financial strategy.
• Discussions of supply and demand, including historical context and future forecasts, involve estimates and assumptions subject to significant uncertainties. Actual future conditions (including oil supply, demand, and prices) may vary markedly from the analysis presented.
• The commentary regarding our trading approach and investment views, including short-term trading outcomes and long-term market predictions, represents the opinions of our investment team at the time of writing. Our commentary does not promise or guarantee future investment strategies or performance.
• Our economic outlook, including any predictions of economic conditions or their impact on investments, is speculative and should not be relied upon for making investment decisions. Economic conditions are complex and can be affected by various unforeseen factors.
• Comments made on third-party sites are the views of the individuals and do not represent the opinions or recommendations of Ceros. Ceros does not monitor or endorse these comments.
• Dynamic Wealth Group (“Dynamic”) is an SEC-registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product.
• Opinions expressed by Dynamic are based on economic or market conditions when this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated.
• Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.
• Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.
• S&P 500 Total Return Index: The Standard and Poor’s 500 is a capitalization-weighted index of 500 stocks representing all domestic industry groups. S&P500TR assumes reinvestment of any dividends.
• S&P Target Risk Growth Index: The S&P Target Risk Growth Index is designed to measure the performance of equity allocations, while seeking to provide limited fixed income exposure to diversify risk.
• © 2025 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
• Fund Ranking Disclosure: As of 12/31/24, the fund was ranked #1 in the Morningstar Macro Trading category out of 60 funds for the 1-year period based on total returns. Rankings are based on historical performance and are subject to change.