Performance Overview
The Absolute Convertible Arbitrage Fund (ARBIX) returned +3.43% during the second quarter of 2026, bringing year-to-date performance to +5.14%. The fund benefited from one of the most favorable environments for convertible arbitrage strategies in recent years.

Following a more challenging first quarter, marked by weaker equity markets and wider credit spreads, market conditions improved significantly during Q2. Investor sentiment strengthened, credit spreads tightened, and equity markets recovered, creating a more constructive backdrop for convertible valuations. Although Treasury yields moved modestly higher, elevated single-stock volatility—particularly among technology companies—continued to provide attractive opportunities for active hedge management and volatility monetization.

Market Commentary
A defining theme of the quarter was the continued expansion of the AI investment cycle. While semiconductor companies remained key beneficiaries of infrastructure spending, investor enthusiasm broadened to software companies as confidence grew that AI investment would drive recurring enterprise applications and monetizable software demand. This rotation supported a strong recovery in software equities, which comprise a meaningful portion of the convertible market.

An important feature of the quarter was the divergence between declining market-wide volatility and persistently elevated stock-specific volatility. Although the Cboe Volatility Index (VIX) fell as macroeconomic concerns eased, many convertible issuers experienced significant price movements driven by earnings, product announcements, and capital spending updates. These company-specific moves created favorable trading opportunities through active hedge rebalancing and gamma trading.

Credit markets also remained supportive. High-yield spreads tightened by roughly 50 basis points during the quarter, providing a tailwind for convertible valuations that partially offset the modest rise in Treasury yields. While spreads remain historically tight, stable credit conditions continue to support the asset class, making disciplined security selection increasingly important.

At quarter-end, approximately 47% of the convertible universe was equity-sensitive, 35% balanced, and 18% credit-sensitive, reflecting a market increasingly driven by equity-related opportunities rather than credit-driven returns.

Q2 Fund Performance Breakdown:
The fund’s gross Profit & Loss (P&L) contributions for the quarter were driven by the following factors:

New Issuance Remains Strong:
The convertible market continued to expand during the first half of 2026. Total issuance reached $92 billion year-to-date, putting the market on pace to exceed last year’s record $119 billion. The U.S. convertible market now totals approximately $474 billion, reflecting continued financing activity, particularly among technology and AI-related issuers.

The growing market provides a broader and more diversified opportunity set, enhancing security selection and allowing for increasingly targeted portfolio construction across issuers, sectors, and risk profiles.

Strategy Perspective:
Convertible arbitrage returns are driven primarily by the interaction of equity volatility, credit conditions, and security-specific dispersion rather than overall market direction. The second quarter offered a favorable combination of these factors.

Despite easing macroeconomic volatility, individual stocks continued to exhibit meaningful price dispersion, creating opportunities for disciplined hedge management as realized volatility frequently exceeded levels implied by convertible valuations. At the same time, stable credit markets and robust issuance expanded the available investment universe and supported portfolio flexibility across equity-sensitive, balanced, and credit-sensitive securities.

Looking ahead, we remain encouraged by the opportunity set. Elevated stock-specific volatility and a healthy pace of new issuance continue to provide attractive conditions for active management. While historically tight credit spreads warrant continued discipline, the size, liquidity, and diversity of today’s convertible market remain supportive of a research-driven investment approach.

(Definitions, supporting data and risk disclosure below)

These views are subject to change at any time based on market and other conditions, and Absolute Investment Advisers disclaims any responsibility to update such views. No forecasts can be guaranteed. These views may not be relied upon as investment advice or as an indication of trading intent on behalf of any Absolute Investment Advised investment product.

Investors should carefully consider the Fund’s investments objectives, risks, charges and expenses before investing. This and other information is in the prospectus, a copy of which may be obtained by calling (888) 992-2765 or visiting the Fund’s web site: www.absoluteadvisers.com. Please read the prospectus carefully before you invest.

Distributor: Ultimus Fund Distributors, LLC
Absolute Investment Advisers LLC is not affiliated with Ultimus Fund Distributors, LLC.