Direxion Indexed Managed Futures Strategy Fund

Overview

Why Invest in the Fund?

• An index-based methodology, with no underlying manager and incentive fees
• Non-correlation to stocks and bonds
• Disciplined, quantitative, rules-based approach to managed futures investing

The Direxion Indexed Managed Futures Strategy Fund offers an index-based methodology and no underlying manager or incentive fees. The fund seeks to replicate the performance of the Auspice Managed Futures ER Index (AMFERI), a long/short index that provides exposure to 21 futures markets including commodities, currencies and interest rates. The fund provides a disciplined approach to managed futures investing without sacrificing performance or diversification.

Strategy & Benefits

Investment Strategy

• Tracks a quantitative, rules-based index
• Provides exposure to 21 futures markets (commodities, interest rates, and currencies) that can individually be positioned long or short
• Has the flexibility to make position changes (long or short) intra-month based on trends
• Reviews trends over shorter time periods, making it more responsive to rapidly changing markets
• Rebalances monthly based on risk, reducing individual component allocations, when volatility exceeds predetermined levels
• Uses a smart-contract roll approach designed to select the most cost effective futures contracts

Key Strategy Benefits

Managed futures have been used successfully by institutional investors for more than 30 years. The advent of managed futures mutual funds has made investing in the asset class more accessible and cost effective.

With the ability to go both long and short, managed futures are highly flexible financial instruments that can provide portfolio diversification and a host of other benefits:

• Historically lower correlation¹ to stocks, bonds, and other alternatives
• Demonstrated ability to perform in various market conditions
• Provide potential to enhance returns and mitigate risk when used as a complement to stocks and bonds

Component Sectors

Direxion Indexed Managed Futures Strategy Fund (DXMAX)
(as of 03/31/2013)

Data as of 03/31/2013 is subject to change at any time and are not recommendations to buy or sell any security.

Monthly Commentary

The following commentary is provided by Auspice Capital Advisors. Direxion did not contribute to this content.

Market Review

The AMFERI had a great April as volatility picked up in both financial and commodity sectors alike. While across all global assets, much of the opportunity came from the equity markets, an area not included in this strategy, the index continued to find tactical value in less obvious places. The month was dominated by the Metals market. The portfolio composition and agility is a central feature of the strategy and its intention to provide non-correlation to institutional and retail equity biased portfolios.

As seen in the next table, the performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.

After a period of challenge for many managed futures strategies, the index is off to a strong start in 2013 making back a significant part of the recent modest drawdown. Pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension.

For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis to the right.

Index Review

The AMFERI was up 2.27% in April and is up 3.95% (table below) in 2013, outperforming a number of investable and non-investable CTA indices highlighted in the table.

Portfolio Recap

In April the index was up in 1 of the 5 sectors. The strongest sector was Metal. The top performing components within the index were shorts in Gold, Silver and Copper complimented by Corn, Crude and Sugar. Long gains were made in Natural Gas. The most challenging sector was Ags after having a very strong March on the short side. The index is currently positioned short in 10 of 12 commodity markets and a number of positions changed intra-month. The index is also tilted long in the financial markets with 5 of the 9 components holding a long weight. Within Financials, Currencies remain a balanced short and long (3 and 3). Interest rates components are mixed with a move to long in 2 of the 3 markets as the price trend pushed higher.

Source: Auspice Capital Advisors

Energy

The petroleum weights have now tilted short – as we have added short positions in Gasoline and Heating Oil while holding short Crude Oil. The index has also moved Natural Gas to a long position for only the second time in 5 years. This was a month of transition for the Energy Sector and the sector was a negative contributor on the month.

The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.

Metals

The Metals sector remains short and benefitted from the significant weakness in Gold and Silver and to a lesser degree Copper. All metals bounced back at month end but remained sharply lower.

Agriculture

While Ags did very well on the short side in March, most markets corrected in April. Grains moved higher with the exception of Corn and Sugar which continued to drift lower. Cotton remains the lone long position in the sector but was pushed lower for a loss.

Interest Rates

After recently moving all components to take advantage of higher interest rates (short bonds), 2 of the 3 markets have gone long. This is on the back of strong renewed momentum higher in rate futures. The index switched both US 5 year and 10 year Notes to long while remaining short 30 year long bonds. There was a small loss from this sector as positions transitioned on the higher price movement.

Currencies

Currencies were flat in April and position weights remain the same. Small gains were made remaining short the Japanese Yen and long the Euro. Most other markets lacked significant short term trend and we remain positioned with the long term trend. We are long Aussie dollar and US Dollar Index while short the British Pound and the Canadian dollar at this time.

¹Standard Deviation – A measure of the dispersion of a set of data from its mean.

²Sharpe Ratio – The Sharpe ratio tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk.

³MAR Ratio – A measurement of returns adjusted for risk that can be used to compare the performance of commodity trading advisors, hedge funds and trading strategies.

⁴Drawdown – The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

Index descriptions:

• The BTOP50 Index seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP50 employs a top-down approach in selecting its constituents. The largest investable trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50. In each calendar year the selected trading advisors represent, in aggregate, no less than 50% of the investable assets of the Barclay CTA Universe.
• The S&P DTI is an investable long/short strategy that can benefit from trends (in either direction) in the global futures markets. It consists of 24 futures contracts, with a 50% weighting in financial futures and 50% weighting in commodities futures. S&P Indices also offers financials-only and commodities-only subsets of the S&P DTI, providing a flexible way to tailor exposure to these respective asset classes.
• The Newedge CTA Index provides the market with a reliable daily performance benchmark of major commodity trading advisors (CTAs). The Newedge CTA Index calculates the daily rate of return for a pool of CTAs selected from the larger managers that are open to new investment. Selection of the pool of qualified CTAs used in construction of the Index will be conducted annually, with re-balancing on January 1st of each year. A committee of industry professionals has been established to monitor the methodology of the index on a regular basis.

Auspice Capital Advisors Disclaimer – Futures trading is speculative and is not suitable for all customers. Past performance may not be indicative of future results and there is no assurance that any of the strategy’s investment objectives will be met. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offense to claim otherwise.

Fund Literature

Download fund literature and regulatory documents

• Fact Sheet (pdf)
• Brochure (pdf)
• Regulatory Documents (including Prospectus, SAI, Semi-Annual Report, Annual Report)

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