NUXIX: Rational/NuWave Enhanced Market Opportunity Fund Offers Proactive Solutions in Precarious Markets


NUXIX: Rational/NuWave Enhanced Market Opportunity Fund Offers Proactive Solutions in Precarious Markets

In the last decade, investors have witnessed a record bull run that has left a variety of equities valuation metrics hovering in overbought territory. Of course, these trends of investment exuberance have been in place for quite some time —and many have already started to position for a potential reversal to the downside. But if investors adopt defensive strategies and make repeated attempts to time the market, historical data suggest portfolio returns are likely to underperform the broader benchmarks over time.

One instrument that is specifically designed to guide investors through this precarious market territory is the Rational/NuWave Enhanced Market Opportunity Fund (NUXIX), which has generated favorable returns during economic periods that were negative for U.S. stock benchmarks and/or managed futures mutual funds.

NUXIX is actively managed with an investment philosophy that is broadly diversified (in that it incorporates both U.S. equity and diversified managed futures trading), provides low correlation to markets, and offers the ability to profit from both long and short positioning stances. Since inception, these time-tested strategies have achieved consistent profitability in dynamic market environments characterized by increasingly unpredictable spikes in volatility.

Innovative Portfolio Designs

Innovative methodologies guide the Rational/NuWave Enhanced Market Opportunity Fund, which is comprised of two complementary components: a proactively managed equities strategy (focusing primarily on large-cap stocks in the S&P 500) and a well-diversified managed futures component (which offers long and short exposure to a variety of commodities and global financial market assets).

The Fund’s equity component employs systematic quantitative strategies designed to identify emerging trends in market behavior. As these historical price patterns indicate pivotal changes in sentiment, the NUXIX portfolio is positioned to capitalize on high-probability opportunities as they develop.

Impressively, the diversified equity holdings in the Rational/NuWave Enhanced Market Opportunity Fund can number in the hundreds at any given time. Individual stocks are identified as likely outperformers and included amongst the Fund’s collection of potential standouts. Investment selections are found predominantly in companies with a market cap above $5 billion, which helps investors minimize long-term volatility averages. Stocks that are possible underperformers are either sold or excluded from the portfolio.

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Equally impressive, the managed futures component of NUXIX deploys a multi-model approach that focuses on more than 50 global markets. This portion of the investment strategy analyzes macro trends in price behavior using hundreds of targeted trading models. Exposure can assume both long and short stances which merges financial futures (fixed income, currencies, stock indices) with commodities futures (metals, meats, softs, grains, and energy). Collectively, the Rational/NuWave Enhanced Market Opportunity Fund’s expansive approach offers a level of portfolio diversification that is rarely found in the financial markets.

Changing Market Environments

As the S&P 500 continues to trade near record highs, it makes sense for investors to look at traditional asset correlations with a more critical perspective. During the first quarter of this year, market analysts reduced S&P 500 earnings estimates by -7.2%. This represents the largest percentage decline in bottom-up EPS expectations since Q1 2016 and indicates deep underlying divergences from the heightened sentiment currently visible in S&P 500 stock valuations.

Of course, this creates an even more precarious territory for investors to navigate. Given the difficulties that are typically present for those making attempts to time the market, much better results will likely be achieved through broadened asset diversification. Systematic portfolio strategies that combine non-correlated asset classes have the potential to generate enhanced returns and limit volatility in the event of a steep market downturn.

As a strong example of this approach, extended trends of outperformance in the Rational/NuWave Enhanced Market Opportunity Fund have become increasingly obvious during recent periods of extended bear market weakness. The blended NUXIX portfolio has demonstrated a sustained ability to produce risk-adjusted returns that are superior to those present in traditional long-only equity portfolios.

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Since 2013, the Rational/NuWave Enhanced Market Opportunity Fund has exhibited positive annual performances on every occasion. In contrast, the S&P 500 Total Return index has posted annual declines 14.29% of the time and the SG CTA Mutual Fund Index has encountered losses on three separate occasions (in 2015, 2016, and 2018).

Interestingly, historical backtesting data (going back more than three decades) largely confirm these results. Since 1987, equity strategies that adopt a blended asset approach with managed futures have been capable of shielding investors from losses when the S&P 500 experienced its five worst drawdowns:

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As we reach a point of maturity which has the potential to bring an end to the historic bull run in the S&P 500, changing market scenarios put NUXIX in a position to generate enhanced returns through two-way positioning stances. For investors seeking U.S. equity exposure, the Rational/NuWave Enhanced Market Opportunity Fund incorporates an innovative long/short component that is macro-focused and capable of driving uncorrelated returns in environments characterized by rising volatility.

In this way, NUXIX is designed to deliver both alpha and beta while neutralizing potential declines when traditional stock benchmarks experience an extended downturn. Investors may face rising challenges in this increasingly complex market atmosphere, making it more difficult to find suitable portfolio returns while lowering inevitable risks and limiting potential drawdowns.

Even the most successful investor is unable to predict the exact moment our next economic downturn will occur. Therefore, investors must consider the portfolio benefits of non-correlated assets, rather than struggle with the impossible task of market timing. For these reasons the Rational/NuWave Enhanced Market Opportunity Fund’s record of outperformance may start to look more attractive to investors in the quarters ahead.

This article was contributed by Dividend Investments

DISCLOSURE: Author has no position in any asset mentioned.

The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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