Performance Overview
The Absolute Convertible Arbitrage Fund (ARBIX) delivered a net return of +2.33% in the third quarter of 2025, bringing the year-to-date return through September 30, 2025, to +6.50%.
The quarter’s dominant theme was the continuation of a strong “risk-on” environment fueled by robust equity markets and the beginning of the Federal Reserve’s interest rate cuts. The Russell 2000, a key gauge for smaller-cap companies, soared by +12.4% during the period.
Convertible Arbitrage Strategy Highlights:
- Equity Volatility Supported Performance: We saw consistent upside surprises in individual stock volatility, particularly among convertible issuers in high-growth sectors like AI, satellites, and power generation for data centers. This environment is conducive to the fund’s strategy.
- Credit Spreads Remain Tight but Favorable: While credit spreads are near historic tights across corporate bonds, convertible bond spreads remain significantly wider than high-yield corporate bonds (approximately 85 basis points wider on average, source-Barclays Convertibles Research). This spread differential continues to offer relative value in the convertible market compared to traditional corporate debt.
Q3 Fund Performance Breakdown:
The fund’s gross Profit & Loss (P&L) contributions for the quarter were driven by the following factors:
The outperformance was primarily generated from the core convertible arbitrage trade (convertible bond appreciation relative to the short stock hedge) and consistent income from the yield/carry component.
A Wave of New Issuance:
The highly supportive market environment led to a robust pace of new convertible bond issuance. In the third quarter, 54 U.S. convertible deals were priced, raising over $28 billion. Year-to-date, this activity has resulted in 115 deals valued at $74.7 billion in the U.S. market alone.
According to BofA convertible research, “ideal conditions” for new issuance persist, “especially among rate-sensitive small and mid-caps that typically offer convertible bonds.” Healthy new issuance is a vital component of the convertible arbitrage strategy because it:
- Often introduces new issues to the market below fair value, creating immediate trading opportunities.
- Increases overall trading volume.
- Provides greater supply, which helps keep a lid on excessive valuations in the secondary market.
Portfolio Risk Mitigation:
We recognize that many investors are concerned about stretched valuations and “overheated” asset prices across broad markets. While market tops are impossible to call, this heightened concern makes it a good time to reiterate the core risk management features of the ARBIX strategy.
Convertible arbitrage is designed for downside resilience relative to traditional long-only equity and fixed income. The fund has demonstrated this capability in recent challenging environments:
- Credit Stress (Early 2020/COVID): The fund showed greater resilience than high-yield corporate bonds in dramatically widening credit spread environment, thanks to our offsetting short equity hedges and exposure to long equity volatility.
- Rising Rates (2022): ARBIX proved resilient to surging interest rates due to the hybrid nature of convertible bonds, interest rate hedging and the portfolio’s relatively short average duration (currently around 3 years).
Truly Different Exposure:
The ARBIX fund offers a unique proposition for investors seeking non-directional returns:
- Unique Credit Exposure: Our focus on the convertible market provides access to a distinct subset of corporate credit, primarily high-growth companies in rapidly changing technology and emerging industries. This is exposure that is not easily available in the straight corporate bond markets.
- Fixed Income Stream Without Directional Equity Risk: An investor cannot simply buy convertibles or long-only convertible funds without taking on substantial, directional equity risk. ARBIX exists to manage this, utilizing our experience to construct a highly diversified portfolio, hedge each security individually, and offer the fixed income stream without the equity beta.
- Liquidity and Structure: Unlike private credit funds or traditional hedge funds, ARBIX provides daily liquidity and achieves its objective without the use of leverage at the fund level.
In a market defined by complexity and uncertainty, ARBIX continues to serve its primary function: delivering a source of low-volatility, low-beta, absolute returns. This non-directional strategy makes it a valuable complementary fixed income investment or an alternative “third leg” in a diversified portfolio. We are pleased to report that investor confidence remains strong, as evidenced by a $60 million increase in Assets Under Management (AUM) during the third quarter.
(Definitions, supporting data and risk disclosure below)
Quarter-End Performance for ARBIX: As of 09/30/25, the 1 year, 5 year and 10-year annualized performance for the Absolute Convertible Arbitrage Fund was 7.76%, 4.93% and 5.17% respectively.
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month-end, call the Fund at 888-99-ABSOLUTE. Returns include the reinvestment of dividends and capital gains. Some of the Fund’s fees were waived or expenses reimbursed; otherwise, returns would have been lower.
As stated in the prospectus, the Absolute Convertible Arbitrage Fund’s Total Annual Operating Expense ratio for Institutional Shares is 1.47% (gross and net) through July 31, 2026. Absolute Investment Advisers LLC, the Fund’s Adviser, has contractually agreed to waive its fee and/or reimburse Fund expenses to limit Total Annual Fund Operating Expenses to 1.20% through July 31, 2026 (the “Expense Cap”). This Expense Cap, which excludes all taxes, interest, portfolio transaction expenses, dividend and interest expenses on short sales, acquired fund fees and expenses, broker charges, proxy expenses and extraordinary expenses, may only be raised or eliminated with the consent of the Board of Trustees.
DEFINITIONS:
A Basis Point: (or bps) 1/100th of a percent.
Russell 2000: The Russell 2000 is a market cap weighted index that includes the smallest 2,000 companies covered in the Russell 3000 universe of United States-based listed equities. The Russell is by far the most common benchmark for mutual funds that identify themselves as “small-cap.”
Beta: Beta is the measure of a fund’s relative volatility as compared to the S&P 500 Index which by definition is 1.00. Accordingly, a fund with a 1.10 beta is expected to perform 10% better than the Index in up markets and 10% worse in down markets.
Asset allocation decisions may not always be correct and may ad- versely affect Fund performance. The value of a convertible securi- ty is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on a convertible security’s investment value. Debt securities have interest rate, inflation and credit risks and are subject to prepayment and default risk. High yield and junk securi- ties involve greater risk and tend to be more sensitive to eco- nomic conditions and credit risk. Short sales may be considered speculative and it may be difficult to purchase securities to meet delivery obligations. The Fund may leverage transactions which include selling securities short as well as borrowing for other than temporary or emergency purposes. Leverage creates the risk of magnified capital losses. Diversification does not prevent loss or enhance returns. Foreign investments present additional risk due to currency fluctuations, economic and political factors,
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.
4221 North 203rd Street, Suite 100, Elkhorn, NE 68022-3474
(888) 99-ABSOLUTE or (888) 992-2765
www.absoluteadvisers.com
20251010-4885410
We invite you to spend some time on our website to learn about us and our funds. If there is something you need that you cannot find, please let us know.
Subscribe
If you are a financial professional and would like to receive information on an on-going basis, please fill out this form to join our mailing list.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Links
Absolute Funds
Satellite Capital Partners
Absolute Advisers
Address
82 S. Barrett Square, Unit 2G
Rosemary Beach, FL 32461
383 Central Ave, Suite 259
Dover, NH 03820
Contact
For questions about our funds, email us at: [email protected]
For manager inquires, email us at: [email protected]
781.740.1904
Absolute Investment Advisers LLC © 2025
This website is not a solicitation for the Absolute Funds outside of the United States. For more complete information about the Funds, including investment objectives, risks, fees and expenses, download a Prospectus and read it carefully before you invest. Additional Fund information can be found throughout this site. Mututal funds are distributed by Ultimus Fund Distributors, LLC. The ABEQ ETF is distributed by Northern Lights Distributors, LLC.
Before investing you should carefully consider each Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus and summary prospectus, a copy of which may be obtained by calling 888-99-ABSOLUTE or by visiting each Fund’s page on this website. Please read the prospectus carefully before investing.