Dynamic Alpha Macro Fund (DYMIX) – November 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: 1.99%
* 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 1-833-462-6433.

Dynamic Alpha Macro Fund PORTFOLIO OVERVIEW

Contributors:

• Long:   Japanese Yen, Strategic Equities
• Short: Sugar

Detractors:

• Long:   2-Year Treasuries
• Short: Feeder Cattle

Current Positions (as of 11/30/2024):

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

Macro Observations and Market Analysis

This Month’s Performance

Our global macro strategy underperformed the S&P 500 in November (1.92% vs 5.87%). 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.

While the equity side of the strategy performed in line with the overall market, two of the positions in the global macro allocation underperformed for the month, resulting in overall underperformance versus the equity benchmark.   While this outcome is disappointing, it is not unexpected. Our strategy can be volatile at times. However, 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.

We encourage you to read the rest of the commentary, as our Global Macro Manager provides his thoughts on the near—and long-term possible influences of the incoming Trump administration on the markets and reviews how each of our themes performed in November.

Trump: not what you think

Countless ink has been spilled on Trump and what he means for markets. No one truly knows. Our view is a mix of consensus and contrarian viewpoints.

Long-term (2+ years from now)

Our medium to long-term views on Trump’s policies align with what many prognosticators expect. The one issue Trump has been clear on for forty years is tariffs. Here we see his genuine personal beliefs: unbalanced trade is terrible for America. We believe he will implement broad tariffs (done bilaterally country by country). There won’t be a 60% tariff on China or 20% tariffs across the board. However, a realistic rise from 2-3% (current blended tariff rate) to 6-8% might be in the cards. This will be inflationary long-term.

As a real estate and casino developer, Trump has historically been in favor of loose monetary policy. He wants lower interest rates and doesn’t care about the deficit. Any weakness in the economy or any sort of unforeseen economic shock will unleash deficit spending, which is also inflationary.

This all feeds into our core long-term view where we want to be long gold and short 30-year Treasuries on any medium- to long-term timeframe. We don’t have either of these trades in the portfolio at the moment: gold is still working off a very overbought condition, and Treasury yields may very well head lower near-term. You could call almost everything we just wrote fairly consensus on Wall Street.

Near-term (next 12 months)

We differ with the consensus over the coming 12 months or so. There is near unanimity that the views we expressed on a longer-term basis also apply to the next year. In addition to being bad for bonds (i.e., bad for bond prices as yields are expected to rise), Trump is viewed as the pro-growth, pro-stock market force who led to a booming S&P 500 from 2016 to 2020. But that was a different time and a different economic world.

In 2016, rates were at zero, and the economy was still broadly mired in a slow-growth recovery from the 2008 GFC. The mid-cycle slowdown of 2015/2016 led to a renewed bout of growth in 2017 and beyond. Today, we believe we are much closer to the tail-end of a 15-year bull market in equities. The Fed’s rate hikes from two years ago likely have had a delayed fuse due to the amount of debt termed out and the lingering COVID fiscal stimulus. Nevertheless, we are in a late-cycle labor market and economy compared to the mid-cycle fundamentals in 2016.

In addition, Trump’s recent actions and words don’t align with the Wall St. narrative of “high inflation” and “wild spending.” He understands that the cumulative inflation of 2021-2024 doomed the Harris campaign – it’s doubtful that the first priority he will press for with Republican control of Congress is another round of massive fiscal stimulus. Instead, he appears to be in favor of:

• Renewing the 2017 Tax Cuts and Jobs Act (TCJA) – At the margin, this is more of a brake rather than an accelerator with regard to inflation (the rich who benefit have a low marginal propensity to spend). Political capital spent to extend the tax cuts won’t be available for other fiscal spending, given Republican’s narrow control of the House of Representatives.

• Tariffs, while inflationary longer-term as American production costs exceed Chinese costs, are deflationary short-term, as they are nothing more than a tax on the lower and middle classes (companies might take a slight hit to margins but will likely pass on the cost of the tariffs to consumers).

• Reducing spending—Musk and Vivek’s promotion as efficiency czars, while mainly ceremonial, indicates some willingness to cut spending, particularly in areas of the Federal government where Trump felt slighted during his first term. Scott Bessent’s anointment as Treasury secretary is also interesting, given that he is in favor of reining in the deficit (which is contractionary and hence reduces growth in the near term).

Trump’s policies are rather deflationary near-term. The big fiscal spending that everyone expects doesn’t seem likely until after the next economic contraction.

How does our read of Trump’s indicative actions tie to our market views? Our process relies on three legs: fundamental analysis (most of what we do); technical analysis (useful for timing, position sizing, and profit targets); and lastly, sentiment analysis. Sentiment analysis is always the trickiest as you must rely on a mix of both data as well as a feel for where the crowd is positioned and what the crowd is convinced of – a qualitative endeavor. At turning points, the crowd is almost always wrong.

Where is the crowd today? When asked to rank asset class performance over the next six months, a recent institutional client survey showed the following:

Figure 1 Source: Alpine Macro. Triangles denote last month’s values

Could it finally be time for Treasuries to rally and equities to stumble into a bear market?

We can see it. It feels foolish to go against the Trump euphoria. But this is not 2016.

Portfolio in November

Our portfolio broadly treaded water during the month.  We have four themes that are diversified and rely on different economic and fundamental triggers. We are positioned long 2-year Treasury notes (recession), long the Japanese yen (real rate differentials), short sugar (weather and harvest improvements), and short feeder cattle (retail consumer demand destruction). Only the 2-year Treasury trade is linked to a core view of economic weakness in the U.S. and a potential mild recession in 2025. 

Japanese yen: In July and August of this year, the yen staged a furious rally, due to what financial headlines called the “unwind of the yen carry trade”. We’re not predicating our long yen position on any sort of carry trade. For starters, the best example of a yen carry trade was unwound in 1998, when large leveraged positions short yen were closed in a cascading loop, causing massive damage to hedge funds positioned bearish the yen. Today, it’s unlikely that enough Western capital is short the yen with leverage to cause a similar move in the yen.

A better baseline for analysis relates to large Japanese pension assets. For the last 15 years, these assets have been invested abroad, to earn a return above the paltry yields offered domestically. This trend is at risk of changing. Inflation, while low, finally appears to have a foothold in Japan, as unions push for 5% wage increases (monumental by Japanese standards). While all other developed market central banks are in an easing cycle, the Bank of Japan remains in a hiking posture; as such the real rate differential between the U.S. dollar and the yen should continue to push in favor of yen appreciation – this should be a sustained move higher over a year or so.

2-year Treasury note: The markets have completely priced out most of the rate cuts that they forecasted as of this past summer. Yet, as we have noted in previous letters, hiring remains paltry under the hood of the economy. The U.S. needs to create roughly 175k jobs per month to keep the unemployment rate from rising. For over a year, private sector payrolls have been tepid, with a large chunk of job growth coming from the government sector. The trend in underlying payrolls points to 100k jobs/month, and hiring intentions are very weak. Hiring always stops before the unemployment rate rises – by the time the unemployment rate tells you there is trouble, it’s too late to buy 2-year Treasuries and too late to try to short stocks. This is a high conviction position that we trimmed in October for risk management purposes, but one that we plan on re-building in the months ahead.

Sugar: Inventories globally are low. India has export restrictions and Brazil has had drought and wildfire issues. As with all commodity markets, short positions tend to work best when fundamentals look most bullish yet are at risk of inflecting. The inflection we see is improved production in Thailand and rain in Brazil, where the crop is still one of the largest ever despite the weather issues. From a technical perspective, the sugar market peaked in November 2023 after a 3-year bull market. Both fundamental changes and the big picture price action point to lower prices in the months ahead.

Feeder cattle: Box cutout prices (wholesale prices) have been weakening, especially among lower-quality cuts. Consumers are hitting limits on what they will pay for beef at the supermarket. Demand destruction ultimately implies that consumers shy away from expensive beef and toward cheaper chicken and pork. Feeder cattle prices have rallied in recent weeks as some evidence of herd rebuilding reduces supply. Like sugar, the cattle market peaked in 2023; in the case of cattle, we see demand and not supply as the key catalyst for a leg lower in prices.

As always, we continue to be nimble. If the data 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 1-833-462-6433 or access online at https://regdocs.blugiant.com/dynamic-alpha-macro/
• 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.
• 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.