Measured Risk Strategy Fund
Measured Risk Strategy Fund (MRPAX/MRPIX) invests tactically in options linked inversely to stock market volatility while the majority of the Fund remains invested in short-term fixed income securities or cash.
The Fund seeks total return from capital appreciation and income.
The Fund invests up to 20% in options on volatility-linked ETPs to capitalize on flat or declining levels of volatility, while the balance (80% or more) is invested in short-term fixed income (i.e. Treasury Bills) seeking to limit maximum overnight drawdown risk versus volatility ETPs.
Tactical exposure to short volatility, via options, attempts to limit the risk of severe single-day price declines in rising periods of volatility. The majority of the risk is in options exposure which can suffer total loss in a short period of time.
Here’s how it works
The Fund seeks to outperform equity markets over the long term by purchasing options linked inversely to volatility.
During volatility spikes, these options may lose up to 100% of their value. Yet by limiting this “high-risk component” to a small percentage of the portfolio, the Fund seeks to avoid catastrophic losses, especially over short periods of time. The underlying movement of the Index offers the potential for gains that may counterbalance losses and provide an opportunity for net positive return over time.
Hypothetical allocation percentages illustrated here may not be indicative of actual allocations at any given time and are provided for illustration only. Options Risk. There are risks associated with the purchase of call and put options. As the buyer of a put or call option, the Fund risks losing the entire premium invested in the option if the Fund does not exercise the option or sell to close the position while it still has value. Although a small portion (2%-5%) of the Fund is allocated to mitigate an extreme upward spike in volatility, the Fund may experience extreme price declines in a single day.Fixed Income Risk. When the Fund invests in fixed income securities, the value of your investment in the Fund will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned by the Fund. In general, the market price of fixed income securities with longer maturities will increase or decrease more in response to changes in interest rates than shorter-term securities. Other risk factors include credit risk (the debtor may default), extension risk (an issuer may exercise its right to repay principal on a fixed rate obligation held by the Fund later than expected), and prepayment risk (the debtor may pay its obligation early, reducing the amount of interest payments). These risks could affect the value of a particular investment by the Fund, possibly causing the Fund’s share price and total return to be reduced and fluctuate more than other types of investments. The Fund attempts to mitigate these risks by investing in short-term US Government Treasury Bills and cash.