MAKE VOLATILITY YOUR ASSET. LJM PRESERVATION & GROWTH FUND

Transcription

1 MAKE VOLATILITY YOUR ASSET. LJM PRESERVATION & GROWTH FUND

2 MARKETS CAN BE ROCKY. HARNESS VOLATILITY WITH LIQUID ALTERNATIVES. Liquid alternatives are mutual fund investments that derive value from sources beyond those found in a traditional equity or fixed income investment. Potential benefits of Liquid Alternatives: > Enhanced Portfolio Diversification > Improved Risk-Adjusted Returns > Downside Protection > Uncorrelated Return Streams

3 AREN T ALTERNATIVES RISKY? ANNUALIZED RETURNS & STANDARD DEVIATION ALTERNATIVES STOCKS 20% 15% 10% 5% 0% 8.65% 9.27% 5.75% ANNUALIZED RETURNS 6.89% 15.04% STANDARD DEVIATION 3.65% BONDS Equities are easy to comprehend, which often leads to a skewed perception of risk. Alternatives, generally more complex investments than equities, are perceived as risky, yet have historically delivered nearly the same risk-adjusted returns as stocks. Alternatives have provided better returns over the last twenty years with less than half the volatility of stocks. Alternative investments are not suitable for all investors. Past performance does not guarantee future results. Alternatives are represented by HFRI Fund Weighted Composite; stocks by S&P 500 Total Return Index; bonds by Barclay US Aggregate Bond Index. An investor cannot invest directly in an index, and its performance does not reflect the performance of any LJM portfolio. Unmanaged index returns do not reflect any fees, expenses, or sales charges. The referenced indices are shown for general market comparisons and are not meant to represent the Fund. Source: Bloomberg AN OPPORTUNITY BEYOND THE TRADITIONAL PORTFOLIO ALLOCATION MODEL Most investors are familiar with a traditional equity/bond portfolio. What is the outcome if 20% of a portfolio were reallocated to liquid alternatives? 60% TYPICAL PORTFOLIO ALLOCATION 40% BONDS STOCKS 50% 20 % ALTERNATIVE PORTFOLIO ALLOCATION 30% LIQUID ALTERNATIVES BONDS STOCKS Allocating 20% to alternatives improved annualized performance by 10% and reduced volatility of returns by 11%. The results showed better risk-adjusted returns over the period from DIVERSIFIED PORTFOLIO 60/40 PORTFOLIO 60/40 Portfolio Diversified Portfolio Annualized Return 8.12% 8.23% 4000 Standard Deviation 10.41% 9.28% Sharpe Ratio Standard Deviation: A statistical measure of the historical volatility of an investment. A measure of the extent to which numbers are spread around their average. The greater the standard deviation, the greater the investment s volatility. 0 Jan-94 Oct-94 Jul-95 Apr-95 Jan-97 Oct-97 Jul-98 Apr-99 Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Aprl-11 Jan-12 Oct-12 Jul-13 Apr-14 Sharpe Ratio: A statistical measure of risk-adjusted returns. Calculated as (Portfolio Return-Risk Free Rate)/Standard Deviation. This material is provided for educational purposes only and is not meant to represent Fund performance, nor should it be construed as investment advice or an offer or solicitation to buy or sell securities. The above illustration is for general market comparisons and is not meant to represent fund performance. Investors cannot invest directly in an index.

4 HARNESS VOLATILITY AND ASCEND TO A NEW LEVEL OF INVESTING IMPLIED VOL LEVEL REALIZED VOL LEVEL IMPLIED AND REALIZED VOLATILITY LEVELS At nearly all levels, implied volatility was higher realized volatility the majority of the time JAN 03 OCT 03 JUL 04 APR 05 JAN 06 JUL 07 APR 08 JAN 09 OCT 09 JUL 10 APR 11 JAN 12 OCT 12 JUL 13 APR DIFFERENCE BETWEEN IMPLIED AND REALIZED VOLATILITY JAN 03 SEP 03 MAY 04 JAN 05 SEP 05 MAY 06 JAN 07 SEP 07 MAY 08 JAN 09 SEP 09 MAY 10 JAN 11 SEP 11 MAY 12 JAN 13 SEP 13 MAY 14 The spread over time is clearly positive. The area contained by the line above zero exceeds the area contained below zero IMPLIED-REALIZED Source: Bloomberg, One Month Implied and Realized Volatility LJM Funds aims to capitalize on the spread between implied and realized volatility by constructing portfolios of S&P 500 options. Option contract pricing is based on what s called implied volatility. Implied volatility represents the broader market s expectation for market movement. The actual market movement is then defined as realized volatility. LJM builds portfolio of long and short put and call options. Portfolios are net short in the aggregate to attempt to target positive risk/return profiles based on current market conditions. LJM Funds believes the spread between implied and realized volatility will persist, providing sustainability of the strategies. Markets are inherently volatile and options products present opportunities to profit from the ups and downs of equity markets. LJM Funds structures volatility investment products with the intent to profit independent of market direction. Profit opportunities are represented by the long-term phenomenon of the positive spread between implied and realized volatility. There is no guarantee that any investment strategy will achieve its objectives, generate profits or avoid losses. This material is provided for educational purposes only and is not meant to represent Fund performance, nor should it be construed as investment advice or an offer or solicitation to buy or sell securities. To learn more about the investment strategy, please contact us at: (312) [email protected] ljmfunds.com

5 WHY IS THERE A HISTORICAL POSITIVE SPREAD BETWEEN IMPLIED AND REALIZED VOLATILITY? There are a number of reasons that the spread between implied and realized volatility exists, but ultimately LJM believes the persistent gap is attributable to behavioral bias of investors. If you examine the S&P 500 options market, there are a disproportionate number of natural option buyers relative to option sellers. Because demand is greater than supply, LJM concludes that investors are generally willing to pay a premium to purchase an option, thus transferring the risk of extreme market events to the option seller. Historically, the forecast for future volatility trends higher than actual volatility the majority of the time, which implies that investors often overestimate the probability of high-risk events. This behavioral bias is often credited with the spread between implied and realized volatility. Our objective at LJM is to harness the volatility risk premium generated by options to generate returns. LJM relies on sophisticated risk management to balance the amount of risk that we are willing to carry relative to the potential premium. We aim to contain risk during extreme events to create a positive, uncorrelated stream of returns over the long term.

6 ABOUT LJM FUNDS MANAGEMENT LJM Funds Management ( LJM ) was founded in 2012 as an affiliate of LJM Partners, an investment firm that has been managing alternative investment strategies since The senior level portfolio & risk management teams have over fifty years combined experience managing volatility strategies through an array of market conditions, including LJM s goal is to allow investors to take advantage of the team s skills with the ease and advantages of investing through an open-ended mutual fund, the LJM Preservation & Growth Fund. ANTHONY J. CAINE FOUNDER AND CHAIRMAN I traded my first option more than 30 years ago and have been executing volatility strategies in LJM s current form for more than 20 years. I am LJM s largest single client because LJM strategies have what I perceive are the best prospects to generate long-term, positive returns independent of stock market direction. After all of these years, I retain the same excitement and optimism for LJM s clients to profit in today s equity derivative markets. Read Anthony s Full Bio: J. SCOTT SYKORA PRESIDENT AND CHIEF COMPLIANCE OFFICER Leading an alternative investment company starts with recruiting and retaining top talent, then instilling the culture of perfect ethics. The compliance landscape is ever changing, so starting with ingraining proper values is the key to staying proactive. LJM has maintained a perfect regulatory and compliance record for LJM affiliates and clients since inception, and continues to apply resources to protect our firm and our clients. Read Scott s Full Bio: ANISH PARVATANENI, CFA CHIEF PORTFOLIO MANAGER I ve had the opportunity to work with extremely talented traders throughout my career. I have found LJM to be one of the most collaborative teams I have encountered. Opposed to our clients relying on the skills of one portfolio manager, we have a full team dedicated to improving and evolving the strategy to target success over the long term. It is the people at LJM that really make the difference for our clients. Read Anish s Full Bio: ARJUNA ARIATHURAI CHIEF RISK OFFICER My experience ranges from the largest banks to small startups. LJM has the best of both worlds for a risk officer. Our tools and investment in research are right on par with the largest organizations. At the same time, I am not constrained to managing a single measure of risk, because we have constant interaction between risk, trading, and operations. To me, that creates the strongest foundation for an investment firm. Read Arjuna s Full Bio:

7 SHARE CLASSES Share class Ticker symbol Initial Subsequent Max sales charge Max deferred sales charge Redemption fee* Management fee 12B-1 Total expense ration** Total annual fund operating expense A class LJMAX % 1% 1% 1.95% 0.25% 2.49% 3.80% I class LJMIX None None 1% 1.95% None 2.24% 3.55% A Class Shares Load Waived Available *Within 60 Days **Total Expense Ratio is the Total Annual Fund Operating Expenses After Fee Waiver and or Reimbursement Inception January 2013 Advisor Auditor Administrator Legal Counsel Distributor Custodian Trust LJM Funds Management, Ltd. McGladrey LLP Gemini Fund Services, LLC Dechert LLP Northern Lights Distributors, LLC Union Bank, N.A. Two Roads Shared Trust DISCLAIMER: Mutual Funds involve risk including possible loss of principal. The Fund will invest a percentage of its assets in derivatives, such as futures and options contracts. The use of such derivatives and the resulting high portfolio turn-over, may expose the Fund to additional risks that it would not be subject to, if it invested directly in the securities and commodities underlying those derivatives. The Fund may experience losses that exceed those experienced by funds that do not use futures contracts, options and hedging strategies. Changes in interest rates and the liquidity of certain investments could affect the Fund s overall performance. The Fund is non-diversified and as a result, changes in the value of a single security may have significant effect on the Fund s value. Other risks include U.S. Government securities risks and investments in fixed income securities. Typically, a rise in interest rates causes a decline in the value of fixed income securities or derivatives owned by the Fund. Furthermore, the use of leveraging can magnify the potential for gain or loss and amplify the effects of market volatility on the Fund s share price. The Fund is subject to regulatory change and tax risks. Changes to current regulation or taxation rules could increase costs associated with an investment in the Fund. Investors should carefully consider the investment objectives, risks, charges and expenses of the LJM Preservation and Growth Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained at or by calling 855-LJM-FUND. The prospectus should be read carefully before investing. The LJM Preservation and Growth Fund is distributed by Northern Lights Distributors, LLC member FINRA. LJM Funds Management, LTD., is not affiliated with Northern Lights Distributors, LLC.

8 LJM Funds Management One Financial Place 440 S. LaSalle Street Ste 2301, Chicago, IL Phone: (312) NLD-3/19/2015