Readers of Financial Research Should Maintain a Healthy Dose of Skepticism
Our firm mission is dedicated to investor education and we often highlight and discuss hypothetical results associated with our own research and/or the research of others. We rarely (if ever) discuss live performance on the “blog” area of our website, so the reader should assume that anything they read on the “blog” is hypothetical and subject to all the disclaimers below. We ask that you use your common sense when reviewing and interpreting research findings that use hypothetical results or live performance results.
The Official Disclosures
Performance figures contained herein are hypothetical, unaudited and prepared by Borealis Global Advisory, LLC; hypothetical results are intended for illustrative purposes only.
Past performance is not indicative of future results, which may vary.
There is a risk of substantial loss associated with trading commodities, futures, options, and other financial instruments. Before trading, investors should carefully consider their financial position and risk tolerance to determine if the proposed trading style is appropriate. Investors should realize that when trading futures, commodities and/or granting/writing options one could lose the full balance of their account. It is also possible to lose more than the initial deposit when trading futures and/or granting/writing options. All funds committed to such a trading strategy should be purely risk capital.
Hypothetical performance results (e.g., quantitative backtests) have many inherent limitations, some of which, but not all, are described herein. No representation is being made that any fund or account will or is likely to achieve profits or losses similar to those shown herein. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently realized by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of 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 adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results. The hypothetical performance results contained herein represent the application of the quantitative models as currently in effect on the date first written above and there can be no assurance that the models will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the hypothetical performance period will not necessarily recur. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual trading results. Hypothetical performance results are presented for illustrative purposes only.
Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.
There is no guarantee, express or implied, that long-term return and/or volatility targets will be achieved. Realized returns and/or volatility may come in higher or lower than expected.
Third Party Authors and Data Sources
Certain economic and market information contained herein has been obtained from published sources prepared by other parties, which in certain cases have not been updated through the date hereof. While such sources are believed to be reliable, neither Borealis Global Advisory nor its affiliates assumes any responsibility for the accuracy or completeness of such information and such information has not been independently verified by Borealis Global Advisory.
Many authors provide material on our website. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Borealis Global Advisory, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Borealis Global Advisory to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Borealis Global Advisory.
Tax-Related Matters
Neither Borealis Global Advisory nor its affiliates provide tax advice. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matters addressed herein. You should seek advice based on your particular circumstances from an independent tax advisor.
The information contained in this communication is not meant to substitute for a thorough estate planning and is not meant to be legal and/or estate advice. It is intended to provide you with a preliminary outline of your goals. Please consult your legal counsel for additional information.
Gross Performance Calculations
Results from the research we discuss may be shown gross of fees and do not reflect the effect of investment fees which would lower performance. Performance reflects the reinvestment of dividends and other earnings. Performance information shown does not reflect any charges or fees which may or may not be imposed by Borealis Global Advisory or another money manager, which will reduce performance returns. The following hypothetical illustrates the compound effect fees have on investment return: For an account charged 1% with a stated annual return of 10%, the net total return before taxes would be reduced from 10% to 9%. A ten year investment of $100,000 at 10% would grow to $259,374, and at 9%, to $236,736 before taxes.
Investment Risk Definitions
All investments involve risk and may lose value. The value of your investment can go down depending upon market conditions. Moreover, there are additional risks associated with the various strategies we deploy that investors should understand:
Volatility Risk
The Strategy may have investments that appreciate or decrease significantly in value over short periods of time. This may cause the Strategy’s net asset value per share to experience significant increases or declines in value over short periods of time, however, all investments long- or short-term are subject to risk of loss.
Momentum Style Risk
Investing in or having exposure to securities with positive momentum entails investing in securities that have had above-average recent returns. These securities may be more volatile than a broad cross-section of securities. Returns on securities that have previously exhibited momentum may be less than returns on other styles of investing or the overall stock market. Momentum can turn quickly and cause significant variation from other types of investments, and stocks that previously exhibited high momentum may not experience continued positive momentum. In addition, there may be periods when the momentum style is out of favor, and during which the investment performance of a Strategy using a momentum strategy may suffer.
Value Style Investing Risk
A value stock may not increase in price if other investors fail to recognize the company’s value and bid up the price, or the markets favor faster-growing companies. Cyclical stocks in which the Strategy may invest tend to lose value more quickly in periods of anticipated economic downturns than non-cyclical stocks. Companies that may be considered out of favor, particularly companies emerging from bankruptcy, may tend to lose value more quickly in periods of anticipated economic downturns, may have difficulty retaining customers and suppliers and, during economic downturns, may have difficulty paying their debt obligations or finding additional financing.
Hedging Model Risk
The risk that the Strategy’s use of hedging strategies based on mathematical models may not produce the desired result or risk that the Adviser is unable to trade certain derivatives effectively or in a timely manner. The Strategy uses a mathematical approach to the implementation of hedging strategies. Maintenance of the hedging strategies will not ensure that the Strategy will deliver competitive returns. The use of derivatives in connection with the Strategy’s hedging strategies may expose the Strategy (and therefore the Strategy) to losses (some of which may be sudden) that it would not have otherwise been exposed to if it had only invested directly in equity securities. Hedging strategies could limit the Strategy’s gains in rising markets and may expose the Strategy to costs to which it would otherwise not have been exposed. The Strategy’s hedging strategies may result in the Strategy outperforming the general securities market during periods of flat or negative market performance, and underperforming the general securities market during periods of positive market performance.
Leverage Risk
A strategy may enter into short sales and/or make investments in futures contracts, forward contracts, options, swaps and other derivative instruments. These investment activities provide the economic effect of financial leverage by creating additional investment exposure to the underlying instrument, as well as the potential for greater loss. If a strategy uses leverage through activities such as entering into short sales or purchasing derivative instruments, the strategy has the risk that losses may exceed the net assets of the account. The net asset value of the account, while employing leverage, will be more volatile and sensitive to market movements.
Commodities Risk
Exposure to the commodities markets may subject the Strategy to greater volatility than investments in traditional securities. The value of commodity-linked derivative investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, embargoes, tariffs and international economic, political and regulatory developments.