Finding an Off-Ramp from T-Bills

How RFXIX Can Fit into Your Investment Approach as the Fed Winds Down its Fight Against Inflation

It’s our belief that during the Fed’s fight against inflation, fixed income investors have had more options in their search for low-risk yield. With interest rates at levels not seen since 2007, T-bills have offered the market a cozy corner to ride out volatility. While cuts may not be as imminent as the market thought prior to 2024, investors still have to plan for their next steps. When rate cuts are put in place, investors may be wondering where to go next to find potentially higher yields with lower risk. We recommend exploring our actively managed bond fund that is currently offering a 5.34% SEC yield and a historical beta vs. the Agg of 0.21 (as of March 31, 2024).

The Rational Special Situations Income Fund (RFXIX) invests primarily in non-agency residential mortgagebacked securities with the ability to invest in a variety of other asset-backed securities. The management team at ESM focuses on legacy bonds, which typically are seasoned with stronger loan-to-value ratios.

The Fund distributes income on a monthly basis and has generated a +12.34% annualized net return since inception on 02/01/2009. RFXIX seeks returns through litigation strategies, structural inefficiency and incremental yield strategies, and in core fixed income holdings.
See below for the distribution yield for RFXIX over the past year (as of March 31, 2024):

Current Income: 30 Day SEC Yield
Rational Special Situations Fund
Subsidized SEC Yield
Class I 5.34%
Class A 4.86%
Class C 4.34%

SEC Yield calculated according to SEC form N-1A. The advisors and the Fund have entered into an expense limitation agreement. The Fund’s SEC Yield without expense limitation is 5.29% (I), 4.81% (A), and 4.34% (C) as of March 31, 2024. The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ending 3/31/2024, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period.

Rational Special Situations Income Fund (RFXIX) Distribution Yield

Source: YCharts. Past performance is not a guarantee of future results.

In addition to offering a current 5.34% SEC yield, the Fund is also rated 5 stars by Morningstar for the period ending 3/31/2024, based on overall and 3-year risk adjusted returns out of 315 funds in the Multisector Bond Category.

As shown below, the Fund is off to a strong start in 2024 compared to its Morningstar counterparts in the Multisector Category.

Rational Special Situations Income Fund (RFXIX) Performance vs. Morningstar Multisector Category (Based on Total Returns)
As of March 31, 2024

YTD 1-Year 3-Year
RFXIX 3.52 6.50 3.45
Category 1.31 7.09 0.48
Index -0.65 1.99 -2.29
Percentile Rank 3 63 3
# of Investors in Category 359 352 315

The Fund has provided investors with a historical downside hedge, with low beta, and an +11.38% alpha (as of March 31, 2024). RFXIX has also seen lower drawdowns and a higher percentage of positive months vs. the US Agg and MBS TR Index, as shown below:

Source: Rational Advisors, Inc. Based on monthly returns from February 2009 to March 2024. Note: Prior to July 17, 2019, RFXIX operated as ESM Fund I, L.P. (the “Predecessor Fund”). See Important Risk Considerations sections for more information. Indexes are presented for informational purposes only. Investors cannot invest directly in an index, and unmanaged index returns do not reflect the impact of any fees or expenses. Past performance is no guarantee of future results.  There is no assurance that the Fund will achieve its investment objective, generate profits or avoid losses.

And as you can see in the following graph, while the Agg has seen volatility over the past 3 years, the Rational Special Situations Income Fund has provided investors with a smoother ride and returns outpacing the Index by nearly 20%:

Rational Special Situations Income Fund (RFXIX) Returns | March 2021 – March 2024

“We are optimistic for 2024. we believe Non-agency RMBS continue to offer attractive loss-adjusted yields, we’re finding special situations abound in both RMBS and CMBS, and we are excited about the special situations we already hold.”
– ESM Management


While there’s no magic 8-ball to tell where rates are headed, many market observers believe we’re near the peak, and the Fed is likely to wind down sooner rather than later. And as the search for higher yielding, lower volatility options will expand, we believe you should consider the many benefits of investing in the Rational Special Situations Income Fund (RFXIX).

Data as of Quarter End: 2024-03-31T00:00:00
Annualized if greater than a year

Share Class 1 Month 3 Months 6 Months YTD 1 Year 3 Years Annualized 5 Years Annualized 10 Years Annualized Since Inception Annualized
Class A 1.39% 3.41% 4.61% 3.41% 6.18% 3.18% 3.94% 6.16% 12.07%
Class C 1.34% 3.24% 4.24% 3.24% 5.42% 2.43% 3.16% 5.37% 11.23%
Class I 1.41% 3.52% 4.79% 3.52% 6.50% 3.45% 4.21% 6.43% 12.34%
Class A w/Sales Load -3.41% -1.49% -0.37% -1.49% 1.16% 1.52% 2.93% 5.64% 11.70%

*Inception: 02/01/2009. The performance shown prior to July 17, 2019 is that of the Predecessor Fund, which reflects all of the
Predecessor Fund’s actual fees and expenses adjusted to include any fees of each share class.

Maximum sales charge for Class A is 4.75%. Maximum Deferred Sales Charge of 1.00% on Class C Shares applies to shares sold within 12 months of purchase. Gross expense ratios for the fiscal year were 2.06%, 2.77% and 1.80% for Class A, C and I shares, respectively. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Results shown reflect the waiver, without which the results could have been lower. A fund’s performance, especially for very short periods of time, should not be the sole factor in making your investment decisions. To obtain the most recent month end performance information or the Fund’s prospectus please call 800-253-0412 or visit www.RationalMF.com.

The performance data quoted represents past performance. Current performance may be lower or higher than the performance data quoted above. Past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that investor’s shares, when redeemed, may be worth more or less than their original cost. For performance information current to the most recent month-end, please call toll-free 646-827-2761.

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. Rational Advisors, Inc. and ESM Management are not affiliated with Northern Lights Distributors, LLC.

Important Risk Considerations: 

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 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 non-diversified and may invest a greater percentage of its assets in a particular issue and may own fewer securities than other mutual funds; 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 by acquiring all of the assets and liabilities of ESM Fund I, L.P. (the “Predecessor Fund”) in a taxfree 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 1940 Act or Subchapter M of the Internal Revenue Code, 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. 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 Morningstar Rating™ for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10- year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Morningstar Category/Morningstar Category % Rank Investments are placed into Morningstar categories based on their compositions and portfolio statistics so that investors can make meaningful comparisons. Morningstar Category % Rank is a fund’s total-return percentile rank relative to all funds in the same category. The highest (or most favorable) percentile rank is one and the lowest (or least favorable) percentile rank is 100. The Category % Rank complements the Morningstar Rating, especially for funds in smaller categories because these funds may have received a 3-star rating but could be in the top half of their category performance.


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