MARKET NEUTRAL

Objective

The goal of the Market Neutral strategy is for consistent growth with stability of principal, seeking low correlation to traditional markets.

Investor Profile

The Market Neutral strategy is appropriate for those investors who seek diversification away from the overall U.S. market. The investor is more concerned with stability of principal and reduced volatility through diversification.

Fund Strategy

The portfolio combines investments in sectors, industries, and countries using exchange traded funds that the manager thinks are undervalued and has the potential to appreciate and combines that investment with investments the manager believes will appreciate (decline) in value if the S&P 500 and Russell 2000 decline (appreciate) in value. Specifically, the exchange traded funds short and use futures and options contracts to move in the opposite or inverse direction of the market.

Stock Selection Process

Investments are selected if they meet the following three criteria:

• Risk Analysis: Comprised of Value at Risk (VAR) score that ranks the probability of standard deviation (volatility) for the investment.
• Risk/Reward Matrix: Computes the potential return versus the underlying risk, which is of a specified investment based on the investment's earnings yield (earnings or cash generation) divided by the enterprise value (combined value of the investment's debt and equity)
• Relative Strength: Compares the investment's 6-month return and monthly returns over the last 12 months. This indicates that others agree with our valuation analysis and is our way of avoiding value traps - investments that look compelling on valuation, but lack investment appeal and are more likely to decline in value.