On August 3, ABR Dynamic Funds launched a new liquid alternative mutual fund: The ABR Dynamic Blend Equity & Volatility Fund (ABRVX). The fund joins a growing list of funds that utilize volatility as an asset class, and will do so using a model-driven investment approach to tactically allocate its assets between equities, equity volatility, and cash.
Typically, the ABR Dynamic Blend Equity & Volatility Fund will invest at least 80% of its assets in equities and equity-related derivatives, with total holdings split between three sleeves:
- Equities (i.e., instruments that track the S&P 500);
- Equity volatility (i.e., instruments that track the S&P 500 VIX short-term futures); and
- Cash (i.e., cash and cash equivalents).
The index that the fund tracks is designed to capture favorable volatility movements in the equity markets while maintaining equity exposure to preserve positive performance during extended periods of rising markets.
Objective & Approach
The ABR Dynamic Blend Equity & Volatility Fund’s investment objective is to provide results that generally correspond to the ABR Dynamic Blend Equity & Volatility Index, as calculated by Wilshire; a benchmark index that measures the returns of a “dynamic ratio” of large-cap stocks and the volatility of large-cap stocks. In other words, the ratio of stocks, equity volatility and cash isn’t static over time. This is explained in the prospectus as follows:
- The Fund is systematically rebalanced once daily to replicate the ratio of the Index’s exposure to the S&P 500 Total Return Index, the S&P 500 VIX Short-Term Futures Index, and cash based on the investment model’s assessed volatility in the market and the historic returns of the underlying indexes.
- The Fund’s exposure to the S&P 500 Total Return Index increases in periods of relatively low market volatility, as determined by the Index, which reflects the investment model and compared to historic levels of market volatility.
- During periods of extremely low volatility in the equity markets, the Fund’s exposure to the S&P 500 Total Return Index may approach 100%.
- The Fund’s exposure to the S&P 500 VIX Short-Term Futures Index increases in periods of relatively high volatility.
- During periods of extremely high volatility in the equity markets, the Fund’s exposure to the S&P 500 VIX Short-Term Futures Index may approach 50%.
The prospectus also notes that the fund “may also convert to a full cash position as necessary to remain consistent with the cash position weighting of the Index,” but doesn’t make it clear as to what type of market environment would trigger a move to cash.
Management & Share Classes
ABR Dynamic Funds is the fund’s investment advisor, and the firm’s Taylor Lukof and David Skordal are its portfolio managers. Mr. Lukof is the founder and CEO of Dynamic Funds and also CIO of ABR Management. Mr. Skordal is an accomplished professional trader turned portfolio manager with a dozen years of experience in the investment industry. Together, the two men are charged with the task of the day-to-day management of the new fund.
Shares of the ABR Dynamic Blend Equity & Volatility Fund are available in investor (ABRTX) and institutional (ABRVX) classes.
- Investment management fees are 1.75%
- Investor shares have a net-expense ratio of 2.25% and a minimum initial investment of $2,500
- Institutional-class shares have a net-expense ratio of 2.00% and an initial minimum of $100,000.
For more information, visit the advisor’s website.