James Fraser, President and CEO The definition of risk is biased by one’s perspective. In fact, professions often require members to take a narrow view instead of a holistic view. This can be true in the investment realm. For example, an economist may opine on market valuations, interest rate policy, and economic debt as risk factors. A financial advisor may emphasize fund or asset risk as revealed in the historic volatility, liquidity risk, or simply the complexity of a strategy. But investors often have a broader but less articulated sense of risk that is partly guided by evolution.
People are instinctively aware of risks that originate from outside capital markets. Such risks, sometimes called ‘systemic’, are impossible to measure or accurately predict, and, worse, they often behave in a cascading or viral fashion. To bring attention to this area True Exposure Investments, Inc (TruX) of Toronto, Ontario has launched TruX Exogenous Risk Pool (TERP).
Examples of exogenous risk include the 2008 financial crisis wherethe financial system that enables transactions nearly collapsed. Energy and food shortages may occur when complex supply chains are disrupted, terrorism as an ideology can spread in a viral fashion, and social or political unrest can be energized by authorities’ responses or economic events. Cyber threats can be employed to target critical infrastructure such as hospitals and grids and of course, actual pandemics more serious than Covid. These events are more common and consequential than is realized. They have major effects on investments obviously, but can also adversely affect employment income, safety and mobility, and family life. Traditional asset diversification and insurance policies are less effective in confronting exogenous risks.
“Our financial innovation in TERP can be effective at hedging exogenous risks and conventional market volatility,” says Jim Fraser, President and CEO of TruX Investments. TruX was founded by five senior investment industry executives with backgrounds in portfolio management, product development, compliance, and operations.
TERP uses a rules-based strategy holding seven ETFs. TERP is daily priced, low to medium risk, and low fee. Its goal is to truncate losses and participate in USequity growth. Reducing the depth and duration of losses is vital. Deep losses are mathematically difficult to recoup, while long term losses are especially dangerous to retirees who already taking out money to pay living expenses.
“TERP is highly recommended for estates, foundations, and latestage investors who require more stable capital to manage their funding requirements, or have a medium term horizon and cannot simply wait until the market recovers after an event,” says Fraser.
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Our financial innovation in TERP can be effective at hedging exogenous risks and conventional market volatility
The key insight and a major exposure in TERP is based on a behavioral strategy. During major shocks and market downturns in the past, it was impossible to predict which sectors of the U.S. economy would suffer and which would hold up since the type of shock is unpredictable. TruX’s research, however, has shown that consumer staples were consistently strong during downturns since consumers continue to buy necessities, for example, companies like Proctor & Gamble and Costco have stable demand. But Consumer Discretionary companies tend to do very poorly as consumers naturally retrench. This relationship has been highly consistent.
To exploit this behavioral response to societal stress, an overweight allocation to consumer staples is paired with a zero or even short position in consumer discretionary. Sector ETFs are owned for these purposes, as well as other EFTs. In this way, investors can be defensive but also invested instead of holding cash for extended periods and being exposed to inflationary risk and opportunity cost.
In addition, TruX today announced the refiling of the Management Report of Fund Performance (MRFP) for TruX Exogenous Risk Pool (Pool) for the period ended December 31, 2023, and the filing of revised Fund Facts. The purpose of the filings is to correct an inadvertent misstatement of the management expense ratio (MER) and the trading expense ratio (TER) for the Pool for the following period and series:
The misstatement was due to the calculation of the MER including margin interest on the Pool’s investment portfolio incurred in order to achieve the fund’s stated objectives for 2023. TruX has restated the MRFP to exclude this interest from the MER and to include this amount in the TER of the Pool. The MRFP and FFD were amended to state that the interest related to this leverage is included in the TER of the fund.
No other changes were made to the MRFP or Fund Facts for each period. This change had no impact on the stated returns of the Pool.
The revised MRFPs and Fund Facts will be available on the TruX website at www.truxinvestments.com and on SEDAR+ at www.sedarplus.com. A copy of the revised Fund Facts for the Fund will also be provided on request, at no cost, by contacting TruX at contact@truxinvestments.com, or from an investor's dealer or advisor. For further information regarding TruX and the Pool, please visit www.truxinvestments.com.
Inukshuk Capital Management Inc. is the Portfolio Manager hired by True Exposure Investments, Inc. to advise TruX Exogenous Risk Pool.
Commissions, management fees, performance fees and expenses all may be associated with investments in mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.