abr dynamic funds

ABR Dynamic FundsLLC

17 State Street, Suite 725New York NY 10004212.918.4664https://abrfunds.com/home/[email protected]

The Dynamic Management of Volatility Assets

“This Time is NOT Different” Presentation for CFA Society Detroit

for Institutional Investors only – not for Retail use

ABR Dynamic Funds LLC

About ABR Dynamic Funds

Flagship ABR 75/25 Volatility Strategy:

• +27% in 2019

• +0.96 correlation to SPX

• +36% in 2020 (+22% in March 2020)


• +15% in 1H21


ABR currently manages 6 funds:

• 3 mutual funds (U.S. clients)

• 3 UCITS (non-U.S. clients)

ABR was founded to develop the next generation of long-term absolute return strategies

2015Founded

$800mmAssets Under Management

200+U.S. RIAs & International clients

12Employees

20+ years Average quantitative trading experience

Please see the last page for a description of the ABR 75/25 Volatility Strategy. The third UCITS Fund launch is pending.

Past performance does not guarantee future results, and strategy performance will vary over various time periods. Please see page 19 for standardized performance information for the ABR 75/25 Volatility Strategy.


March 2015

ABR Dynamic Funds

was founded

April 2015

Launched 1st ABR Index

Powered by Wilshire

August 2015

1st ABR Mutual

Fund Launched

February 2017

1st ABR UCITS

Fund Launched

October 2017

2nd ABR Mutual

Fund Launched

December 2017

2nd ABR UCITS

Fund Launched

January 2019

ABR Funds available on

all major RIA platforms

January 2020

ABR rolled out on bank

trust & TAMP platforms

August 2020

3rd ABR Mutual

Fund Launched

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ABR Dynamic Funds Timeline & AUM Growth

ABR Dynamic Funds 2015-2Q21: Strong asset growth & business trajectory

ABR Dynamic Funds LLCBackground: Volatility assets are well-suited to

complement traditional portfolios

Asset ClassLong-term Asset Class Correlation to S&P 500

Financial Crisis Asset Class Correlation to S&P 500

Commodities 0.37 0.48

Fixed Income -0.28 0.00

Real Estate 0.78 0.83

Currencies 0.21 0.55

Volatility -0.71 -0.88

Data Source: Bloomberg. 2006 - 2020

See Glossary for the placeholder used to represent each asset class. Past performance does not guarantee future results.


Pros:

Equity volatility hasbeen negatively correlatedto equity price

Equity volatility hasbecome even morenegatively correlated intimes of crisis

Cons:

Static long volatility allocations have bledout over time

Static short volatility allocations haveblown out over time

Volatility as an Asset Class

Negative

Correlation

Crisis

Alpha

Negative

Carry

Inverse

Spikes

SystematicDynamic

Management

Volatility Assets Overview

Past performance does not guarantee future results.


Static Volatility Strategies

Problem: Failure of Static Volatility Exposures

Static Long Volatility: Bleed-Out

With an avg daily decay of 11bps, holding volatility has been expensive.

Static Short Volatility: Blow-Out

With maximum crisis drawdowns

over 90%, the risk must be mitigated.


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2006 2008 2011 2014 2017 2019

Static Long Volatility

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2006 2008 2011 2014 2017 2019

Static Short Volatility


Irrational Behavior – May Create Predictability in Volatility

Optimism

Euphoria

Panic

Fear

Key to ABR’s Successful Differentiation

1. In states of Euphoria and Panic → Volatility has become predictable2. ABR Model → Systematically shifts volatility exposures to target alpha

Greatest Risk of Loss

Fear Of Missing Out

(“FOMO”) causes investors to chase

returns in late state bull markets

Greatest Opportunity for Gain

However, fear and panic cause investors

to sell at the bottom of the market



Panic?



Euphoria?


Crashes are Rare, but Investors Need to be Smart


Empirical evidence of autocorrelation in volatility.

“Large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes.“

Mandelbrot (1963)

Data Source: Bloomberg through 2020Excludes small changes in volatility.

1928S&P 500

Since 1928, realized volatility has moved in the same direction 55% of the time

2006VIX Futures

Since 2006, realized volatility has moved in the same direction 59% of the time

1928Since 1928, the S&P 500 price has moved in the

same direction 51% of the time



Buy high and sell low.

VIX Index Price Frequency Next Day Return of VIX futures

0 - 30 90% -0.13%

30 or higher 10% 0.02%

Data Source: Bloomberg. 2006-2020



True Negative

True Positive

False Positive

False Negative

False Positives vs. False Negatives: Example


False Positive

Disease is misidentified

corrective action taken

False Negative

Disease is misidentified

no action is taken

Result:

Patient undergoes unnecessary testing or procedures

(but not a terrible result)

Result:

Disease spreads and patient dies (worst-case scenario result)

Disease Detection


True Negative

True Positive

False Positive

FalseNegative

Buying Protection Through Volatility


False Positive

Risk is reduced during a correction, but market goes back

up (volatility is purchased, or equity risk is reduced)

False Negative

Risk is NOT reduced during a correction, and market crashes

Result:

Drag created on returns, but no major losses (not great, but not

catastrophic)

Result:

Portfolios experience major drawdowns, and future

compounding of returns may be dramatically reduced (potentially

catastrophic)

False Positives vs. False Negatives: How it Relates to Investing


Recent False Positives in VIX

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05/2020 06/2020 07/2020 08/2020 09/2020 10/2020 11/2020 12/2020 01/2021 02/2021 03/2021 04/2021 05/2021 06/2021

VIX Index (June '20 - June '21)

Recent False Positives in the VIX

VIX Spikes to Highest Since June With Economy Threat Growing

US Dollar Rises from the Dead as VIX Soars, Stocks Drop ...

Dow plummets more than 500 points as volatility returns to…

Sources: Bloomberg, Daily FX, CNN

https://www.bloomberg.com/news/articles/2020-10-28/vix-spikes-to-highest-since-june-with-economy-threat-growing

https://www.dailyfx.com/forex/fundamental/us_dollar_index/usd_trading_today/2020/06/11/us-dollar-rises-from-the-dead-as-vix-soars-stocks-drop-sharply.html

https://www.cnn.com/2021/06/18/investing/dow-stock-market-today-volatility/index.html



False Positives in Volatility – Good, But Can it be Better?

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VIX Index (2006-2Q21)

-1.00

-0.50

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01/2006 01/2008 01/2010 01/2012 01/2014 01/2016 01/2018 01/2020

1-Month Correlation: ABR Long Volatility Strategy to the S&P 500 Index (2006-2Q21)



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VIX Index (2006-2Q21)

Removing False Positives, but not Creating False Negatives

-1.00

-0.50

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01/2006 01/2008 01/2010 01/2012 01/2014 01/2016 01/2018 01/2020

1-Month Correlation: 75/25 Volatility Strategy to the S&P 500 Index (2006-2Q21)


ABR 75/25 Volatility Strategy – Returns & Correlations vs. S&P 500

Semi-Annual Returns & Correlations (Since 2019)

Rolling 6-Month Returns & Correlations (Inception through 1H21)

Past performance does not guarantee future results, and strategy performance and correlation will vary over various time periods. Please see page 19 for standardized performance information for the ABR 75/25 Volatility Strategy.

Please see the Disclosures section for a description of the ABR 75/25 Volatility Strategy.

S&P 500 ABR 75/25

Down 0.28 -4.4% 10.4%

Up 0.87 10.7% 7.1%

S&P 500 6-Month PerformanceAverage

Correlation

Average 6-Month Return

S&P 500 ABR 75/25

6/28/2019 0.98 18.5% 17.8%

12/31/2019 0.90 10.9% 8.4%

6/30/2020 -0.37 -3.1% 19.5%

12/31/2020 0.99 22.2% 13.9%

6/30/2021 0.96 15.3% 15.5%

6-Month Period Ending Correlation6-Month Return


ABR 75/25 Volatility Strategy – Fact Sheet – August 2021

ObjectiveAbsolute return

Features• Notionally unleveraged• Systematic, model-driven exposures in

a simple portfolio:• VIX Futures• S&P 500 Futures• U.S. Treasuries• Cash

• Independent index calculation by Wilshire Associates:

• Transparency• Accountability

• Created by ABR Dynamic Funds, LLC• Quantitative manager• Volatility background

Includes pre-inception performance. Past performance does not guarantee future results.

3-month YTD 2020 1-year 3-year 5-year 10-year

10.10 22.77 36.09 23.16 23.03 16.88 15.95

Performance Snapshot

Annualized Total Return (%)Total Return (%)

Strategy Annualized Return

Correlation to

ABR 75/25 Max Drawdown

Standard

Deviation Sharpe Ratio Sortino Ratio

ABR 75/25 Volatility Strategy 19.7% 1.00 15.7% 15.8% 1.17 2.02

S&P 500 Index 10.8% 0.45 50.9% 14.9% 0.64 0.80

MSCI World Index 8.1% 0.42 54.0% 15.7% 0.44 0.54

Risk Values - Full History

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Annual Returns

S&P 500 MSCI World Index ABR 75/25 Volatility Strategy

The ABR 75/25 Volatility Strategy went live on Jan 31, 2017


Glossary and References

Correlation – A measure of how much the movement of one index or instrument can be explained by the movement of another. Correlation varies from -1 to +1. A correlation of -1 means the movement of the first index or instrument fully explains the movement of the second, and they move in opposite directions. A correlation of +1 means the movement is also fully explained, but they move in the same direction. A correlation of 0 means there is no explanatory power between the first index or instrument and the second.Each investable asset group is represented by the following indices or spot prices unless otherwise specified. Please note that it is not possible to invest directly in these calculations; the following are used simply for illustration purposes.

Equities – S&P 500 Total Return IndexCommodities – DBIQ Optimum Yield Diversified Commodity Index Excess ReturnBonds and Agg Bonds – Barclays US Aggregate Bond IndexReal Estate – Dow Jones US Real Estate IndexCurrencies – EURUSD Spot Exchange RateVolatility

Volatility and Conventional Long Volatility – S&P 500 VIX Short-Term Futures IndexConventional Short Volatility – inverse daily exposure to S&P 500 VIX Short-Term Futures Index

Treasuries – Bloomberg Barclays U.S. Treasury 20+ Year Total Return IndexGold – LBMA Gold Price Index

Nothing in this presentation is a recommendation to buy, hold, or sell any product, nor a solicitation of an offer to buy or sell any product.


Disclosures

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. This material is not an offer to sell, nor a solicitation of an offer to purchase, shares of any fund. Information is as of the date indicated, and is subject to change without notice. Information provided is for demonstration purposes only and is not to be relied upon. While information herein has been obtained from sources which ABR Dynamic Funds, LLC believes to be reliable, ABR Dynamic Funds, LLC cannot and does not guarantee its accuracy or completeness.

Certain performance information shown above is hypothetical. Hypothetical performance does not reflect actual trading experience and does not necessarily reflect the deduction of all expenses. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT,THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFITOF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERETO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. For information on the live trading performance of various ABR managed strategies, please contact us.

The S&P 500 Total Return Index, as adjusted to reflect reinvestment of dividends is an index of 500 stocks arrayed by market capitalization. The Bloomberg Barclays US Aggregate Total Return Bond Index is a broad-based index that measures the investment grade, US dollar-denominated, fixed-rate, taxable bond market. The MSCI World Index is a free-float weighted equity index that includes developed markets. The “ABR 75/25” Volatility Strategy is represented by 75% of the returns of the ABR Dynamic Blend Equity & Volatility Index Powered by Wilshire (ABRVXX) and 25% of the returns of the ABR Enhanced Short Volatility Index Powered by Wilshire (ABRXIV), respectively (collectively, the ABR Indexes). The “long volatility” element (ABRVXX) is shown net of 2.75% hypothetical expenses, and the “short volatility” element (ABRXIV) is shown net of 2.75% hypothetical expenses. Actual expenses may vary. ABRVXX was launched 4/30/15, such that performance information before that date constitutes pre-inception index performance. Investors cannot invest directly in an index. These results are based on hypothetical performance results that have certain inherent limitations. Hypothetical trading programs in general are designed with the benefit of hindsight. For information on the live-trading performance of various ABR-advised investments, please contact us. Wilshire® is a service mark of Wilshire Associates Incorporated (Wilshire), and has been licensed for use by ABR Dynamic Funds, LLC. The ABR Indexes are not sponsored, endorsed, sold or promoted by Wilshire, and Wilshire makes no representations or warranties with respect to the ABR Indexes. ABR Dynamic Funds, LLC may receive compensation in connection with licensing the ABR indices to third parties.


Disclosures

Incorporating a dynamic volatility strategy into a portfolio is designed to help an investor potentially mitigate, and potentially benefit from, volatility in the U.S. stock market. However, all investing involves risk including the possible loss of principal. There can be no assurance such a strategy will achieve a gain or prevent a loss. Volatility assets and strategies may not be suitable for some investors due to their financial circumstances and risk tolerance. A volatility strategy should not be viewed as a complete investment program.

Volatility assets entail their own unique risks that investors should consider when evaluating a volatility strategy. Volatility based futures can become volatile and difficult to value and can be imperfectly correlated to the underlying asset or index. Due to leverage, the loss on a long futures contract could greatly exceed the initial investment. The loss on a short contract theoretically is unlimited since the appreciation of the shorted asset also theoretically is unlimited. Thus, a small investment in derivatives could have a large potential impact on the performance of a portfolio. Further, a volatility strategy may at times call for high portfolio turnover rates, which increases brokerage costs. High turnover also may generate net short term capital gains.

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