Dynamic Alpha Macro Fund (DYMIX): February 2025 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: 2.00%
* Net 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:   2-Year Treasury, British Pound, Japanese Yen, Gold, Silver
• Short: Cocoa

Detractors:

• Long:   Strategic Equities, Corn, Silver, Copper
• Short: E-Mini S&P 500

Current Positions (as of 2/28/2025):

• Long:   Strategic Equities, British Pound, Japanese Yen, Corn, Gold, Silver, Copper
• Short: E-Mini S&P 500

Macro Observations and Market Analysis

Correlation breaks

For the past 75 years, copper prices have tended to correlate with the U.S. economy during economic downswings. The chart below only goes back to the late-1980s, but it’s clear that the white line (the copper price) tended to move with the blue line (Industrial Production) most noticeably during periods where the economy fell into a recession. This makes sense: in the post-WWII era, the U.S. economy has almost always been the marginal driver of global growth. An industrial commodity like copper would be expected to fall during periods of weak demand.

Our suspicion is that we are about to have a correlation break between these two series. China is now the marginal driver of both copper demand and supply. 55% of global copper demand emanates from the Middle Kingdom. (aka China).

Our investment process relies on marrying a fundamental viewpoint – one that the market has not accepted as a central case – with technical price action. Copper’s technical price action is bullish, with a wide swinging base established that looks poised to break above the critical $5 resistance level in the near future.

Source: Bloomberg

The fundamental case that we are playing with is one where for the first time, the copper price diverges from its historical behavior during a U.S. recession. China is now five years into a debt deleveraging following an epic property bust. The authorities are finally applying stimulus measures to the economy. We know that Chinese leadership does not want to print money and hand it to the household sector to spend, as most Western economists would prescribe. Instead, they are using a top-down edict to tell Chinese entrepreneurs and corporates to invest in “new energy” sectors: electric vehicles, battery technology, and other sectors. Significant amounts of copper are required in these areas.

Our analysis indicates that the copper demand from these new energy sectors is more than compensating for the loss of demand from legacy physical infrastructure that has taken a hit from the property overinvestment boom and bust.

What if copper were to break out just as the U.S. economy fell into a recession driven by fiscal tightening and a consumer retrenchment? Although that has never happened in the past, regular readers of our letters know that we have paid careful attention to the correlation break between the price of gold and real interest rates over the past 18 months. Normally, high real rates are death for gold. Instead, gold is up +50% in the face of high real rates, driven by incredible demand from China and other central banks. We think copper is the next metal to break its historical correlation with economic indicators – the rationale may be different than that of  gold, but a large part of the underlying driver is once again China.

Correlation [part two]

A quick note on correlation within the portfolio, unrelated to the discussion above about correlation breaks between a data series and a commodity market.

We are currently long gold, silver, and copper. We know we have embedded correlation across these positions. Here’s our approach to managing it.

Gold is a precious metal where 98% of the value comes from the above-ground stock as its primary use is as a monetary reserve asset. Silver is a mix of precious metal and industrial metal, with its industrial component increasing in importance over time due to its use in solar panels. Copper is an industrial metal, used in later stage parts of property and physical infrastructure, as well as in electric and ICE vehicles, solar, battery, and other technologies. The three metals at first glance seem to be relatively uncorrelated.

The problem is that correlations across the three tend to spike during price pullbacks – that’s the thing to be wary of. Before we place trades, we have pre-determined risk management exit points (for losing trades), points where we add to winning positions (add points), and profit target points. To mitigate against the embedded correlation risk of our metals positions, we plan to skip certain add points that we have modeled out for each market, in order to keep the overall metals exposure in check. The opportunity cost of doing so is that we don’t maximize our profits on all three, but the drawdown insulation is worth that cost.

Portfolio positioning

We continue to have three themes in the portfolio: U.S. recession, China new energy reflation, and diversifying trades.

U.S. recession

Positioning: long 2-year Treasuries, short S&P 500, and long gold. The 2-year Treasury trade, which worked well from May 2024 until the end of September before reversing, has dug in nicely over the past few months. We think the odds of multiple Fed cuts due to recession are being completely ignored in the face of fears over “inflationary” tariffs.

The S&P 500 short, which we have tried at various times over the past couple of years, looks better than ever. No one expects a recession anymore. Retail investors are all-in on stocks. Professionals may say that they are nervous about valuations but even they are all-in due to career risk. A bear market that starts soon would be somewhat akin to the bear market that started in summer 2000 – it didn’t make any sense until you looked at the charts years later. By then it was too late too short.

China reflation

Positioning: long silver and copper. China is to the world what America was in the 1940s and 1950s. Politics aside, it’s truly amazing the extent to which China is the world’s industrial and manufacturing workshop. We are betting that China’s advances continue, and that economic relationships between U.S. economic growth and metals prices are no longer meaningful. We continue to hold a long position in silver and added a long copper futures position in mid-February.

Diversifying

Positioning: long corn and short cocoa (closed in February). Long British pound and Japanese yen. We closed a profitable short cocoa position in February, and maintain a long position in corn, where yields are trending down while global demand remains elevated. We have a high conviction view that the U.S. dollar is putting in a secular top: the dollar is overvalued across the board and the current administration has expressed views that point to their desire for a controlled devaluation of the dollar much as the dollar was nudged down by policymakers from 1985-1987.

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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.
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• 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.
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• 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.
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• 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.