Market Neutral (SMNIF)

The two main objectives of the Sherpa Market Neutral Income Fund (SMNIF) are:

  1. To preserve capital.
  2. To generate yield and capital gains in varying market conditions

The central investment philosophies that guide the SMNIF are the same as those that guide Sherpa’s protected equity fund (Sherpa Diversified Returns Fund Philosophy), with the exception that the Fund is designed to have a lower volatility profile, and to generate income regardless of equity market direction.  SMNIF is an excellent alternative to fixed income in an investor’s portfolio, especially in a low interest rate environment where bond yields are weak, and bond prices are particularly sensitive to interest rate changes.

Accordingly, SMNIF does not have a long bias, and net exposure levels are kept within a band of +/- 20% net long, with an average net exposure of 0% over the long term.  We are net sellers of options, which allows us to generate yield for the Fund, but we systematically use some of the proceeds to purchase options that provide profitable opportunities as well as options that protect the portfolio from market declines.  The Fund employs a rigorous portfolio management process to ensure that the Fund’s strategy delivers its objectives with minimal risk of drawdowns, making SMNIF an attractive alternative for risk-averse, yield-seeking investors.

SMNIF vs Other Asset Classes

In the current volatile market environment, with a high degree of economic uncertainty, the Sherpa Market Neutral Income Fund (SMNIF) provides an excellent alternative for investors seeking absolute returns and low correlation to other asset classes.

 

SMNIF S&P 500 Corp Bonds*
Expected Annual Returns 5 – 8% -10 to 25% 4 – 7%
Expected Volatility 3 – 6% 15 – 20% 3 – 6%
Expected Equity Market Correlation Low 100% Low-Med
Equity Market Risk Low Significant Moderate
Sensitivity to Interest Rate Changes Insignificant Significant Significant

*Based on the statistics of the Barclays US Aggregate Bond Index