Bond Portfolios Are Facing a Correlation Problem!
RFXIX's Special Situations Strategy Offers a Distinct Alternative
Traditional fixed income investments generally make bets on interest rates or credit quality to generate returns. This means investors are typically highly correlated to the market, having to make decisions on changes in interest rates and credit spreads.
At Rational Funds, we believe investors shouldn't have to "be the market" to generate fixed income returns. Instead, investors should seek non-correlated strategies for their portfolios.
The Rational Special Situations Income Fund (RFXIX) has a low correlation to the broad U.S. bond market, represented by the Bloomberg U.S. Aggregate Bond Index. The same can't be said for some common fixed income benchmarks.
Source: Rational Advisors, Inc. and Bloomberg L.P. Correlation figures calculated using monthly return data from 02/01/2009 to 12/31/2025. *"High Yield" refers to the Bloomberg U.S. Corporate High Yield Index. "Corporates" refers to the Bloomberg U.S. Corporate Total Return Index. "Treasury" refers to the Bloomberg U.S. Treasury Index. "MBS" refers to the Bloomberg U.S. Mortgage-Backed Securities Total Return Index. Correlation is a statistical measure of how two securities move in relation to each other. Past performance is no guarantee of future returns. Please see the end of this presentation for important disclosures.
Source: Rational Advisors, Inc. and Bloomberg L.P. Data from 02/01/2009 to 12/31/2025 and reflects rolling 12-month periods. *Returns shown are the Fund's median return during the indicated periods. Rising Rate Environment indicated by an increase in the Federal Funds Target Rate Upper Bound of more than 50 basis points. Falling Rate Environment indicated by a decrease in the Federal Funds Target Rate Upper Bound of more than 50 basis points. Flat Rate Environment indicated by neither an increase, nor a decrease, of the Federal Funds Target Rate Upper Bound by 50 basis points. Past performance is no guarantee of future returns. Please see the end of this presentation for important disclosures.
Source: Rational Advisors, Inc. and Bloomberg L.P. Data from 02/01/2009 to 12/31/2025. Y-axis represents total return. Past performance is no guarantee of future returns. Please see the end of this presentation for important disclosures.
"Special situations" investing enhances RFXIX's ability to pursue alpha through its low correlation to interest rate moves and credit bets. Unlike traditional fixed income, which typically has only two return drivers, RFXIX can deliver returns outside this structure.
Special Situations
- Invests in credit opportunities (bonds) that it believes are undervalued and/or misunderstood.
- Seeks to profit by collecting an attractive yield while working to correct the bond's price or improve its yield.
- Doesn't rely on interest rate moves or credit spreads.
- Uncorrelated to market moves.
Example of an Interest Rate Opportunity
- Investor believes rates will fall and invests in long duration bonds.
- Seeks to profit by selling bonds as their prices rise in relation to falling interest rates.
- Mainly relies on market forces and timing of rate moves.
- Correlated to market moves.
Example of a Credit Opportunity
- Investor believes the market will improve and invests in high yield ("junk") bonds.
- Seeks to profit from higher coupon payments as underlying credit conditions improve.
- Mainly relies on expectations and timing of a strong economy.
- Correlated to market moves.
In Summary
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| Share Class / Benchmark | YTD | 1 Year | 3 Year | 5 Year | 10 Year | Since Inception (02/01/2009) |
|---|---|---|---|---|---|---|
| Class I | 5.18 | 5.18 | 6.05 | 4.48 | 6.40 | 11.67 |
| Bloomberg US Agg TR Index | 7.30 | 7.30 | 4.66 | -0.36 | 2.01 | 2.93 |
| Bloomberg MBS TR Index | 8.58 | 8.58 | 4.90 | 0.15 | 1.59 | 2.46 |
| Class A | 4.93 | 4.93 | 5.81 | 4.23 | 6.13 | 11.40 |
| Class C | 4.16 | 4.16 | 5.01 | 3.45 | 5.34 | 10.56 |
| Class A w/Load | -0.06 | -0.06 | 4.10 | 3.22 | 5.62 | 11.07 |
Past performance is no guarantee of future results.
There is no assurance that the Fund will achieve its investment objectives. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Rational Funds. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling (800) 253-0412 or at www.rationalmf.com. The prospectus should be read carefully before investing. The Rational Funds are distributed by Northern Lights Distributors, LLC member FINRA/SIPC. Neither Rational Advisors, Inc. nor ESM Management LLC is affiliated with Northern Lights Distributors, LLC.
Important Risk Considerations: The Fund is actively managed and is not managed in reference to any benchmark. The benchmarks included herein represent the performance of an investment in broader bond markets, generally, and are provided for comparative purposes only. The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance. The value of your investment and any income related thereto may go down as well as up, and may vary. Income may fluctuate in accordance with market conditions and taxation arrangements.
Investing in the Fund carries certain risks. The value of the Fund may decrease in response to the activities and financial prospects of an individual security or group of securities in the Fund's portfolio. Investors in the Fund bear the risk that the Fund may not be successful in implementing its investment strategies. The Fund is subject to concentration risk. When the Fund invests in asset-backed securities and mortgage backed securities, the Fund is subject to the risk that, if the underlying borrowers fail to pay interest or repay principal, the assets backing these securities may not be sufficient to support payments on the securities. Interest rate risk is the risk that bond prices overall, including the prices of securities held by the Fund, will decline over short or even long periods of time due to rising interest rates. Bonds with longer maturities tend to be more sensitive to interest rates than bonds with shorter maturities. Lower-quality bonds, known as "high yield" or "junk" bonds, present greater risk than bonds of higher quality, including an increased risk of default. Credit risk is the risk that the issuer of a security will not be able to make principal and interest payments when due. These factors may affect the value of your investment.
The Fund commenced operations on July 17, 2019. The performance shown prior to July 17, 2019, is that of the Predecessor Fund (as defined herein), which reflects all of the Predecessor Fund's actual fees and expenses (i.e., the Predecessor Fund's annual management fees and operating expenses before any fee waivers and/or expense subsidies), as adjusted to include any applicable sales loads and distribution (12b-1) fees of each class of shares of the Fund. The performance of the Predecessor Fund has not been restated to include the other fees, estimated expenses and fee waivers and/or expense subsidies applicable to each class of shares of the Fund. The Fund's fees and expenses are expected to be higher than those of the Predecessor Fund, so if the Fund's expenses were applied to the Predecessor Fund's performance, the performance would have been lower.
The Fund commenced operations by acquiring all of the assets and liabilities of ESM Fund I, L.P. (the "Predecessor Fund") in a tax free reorganization on July 17, 2019 (the "Reorganization"). In connection with the Reorganization, investors in the Predecessor Fund received Institutional Shares of the Fund. The Fund's investment objectives, policies, guidelines and restrictions are, in all material respects, equivalent to those of the Predecessor Fund. However, the Predecessor Fund was not registered under the 1940 Act and, therefore, was not subject to certain investment restrictions, limitations and diversification requirements that are imposed by the Investment Company Act of 1940, as amended (the "1940 Act") or Subchapter M of the Internal Revenue Code, as amended, which, if they had been applicable, might have adversely affected the Predecessor Fund's performance. The Fund's Sub-Advisor was the investment adviser to the Predecessor Fund.
Glossary: Alpha: Measures an investment strategy's ability to outperform the market, often called its "edge." Be The Market: A passive investing strategy that aims to replicate the performance of a market benchmark rather than trying to outperform it. Bloomberg US Aggregate Bond TR Index: A market capitalization-weighted index that is designed to measure the performance of the US investment grade bond market with maturities of more than one year. Bloomberg US MBS TR Index: Tracks agency mortgage pass-through securities. Bloomberg US Corporate High Yield Index: measures the USD-denominated, high yield, fixed-rate corporate bond market. Bloomberg US Corporate Bond TR Index: measures the investment grade, fixed-rate, taxable corporate bond market. Bloomberg US Treasury Index: measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury. Credit Spread: The difference between the yields of two bonds that mature at the same time but are rated at different credit qualities. Long Duration: Refers to bonds with extended maturity dates and high sensitivity to interest rate changes.
The views expressed herein are as of February 28, 2026, and represent a general guide to the perspectives of the Adviser and/or the Sub-Adviser. The information and opinions contained in this document have been compiled or arrived at based on sources believed to be reliable and in good faith; however, no representations or warranties of any kind are intended or should be inferred with respect to the accuracy of the information contained herein or the economic return of an investment in the Fund, and no assurance can be given that existing laws will not be changed or interpreted adversely. All such information and opinions are subject to change without notice. Some of the statements in this presentation may contain or be based on forward looking statements, estimates, projections, targets or prognoses (collectively, "forward looking statements"), which reflect the Sub-Adviser's current view of future events, economic developments and financial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the Adviser, the Sub-Adviser and/or certain of its or their advisors, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the Fund or the investments of the Fund, as the occurrence of these events and the results of the Fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the Fund may differ substantially from those assumed in the forward looking statements. The opinions expressed reflect the best judgment of the Adviser and/or the Sub-Adviser at the time this letter was drafted, and the Adviser, the Sub-Adviser, and their respective affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as a result of new information or any future event or otherwise.
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