Performance Overview:
In the second quarter of 2024, the Absolute Convertible Arbitrage Fund (ARBIX) achieved a positive net return of +1.34%. Year-to-date, ARBIX has gained +3.57%, and over the past 12 months, the fund has delivered +6.04%. These results reflect the fund’s resilience, supported by a higher static carry which stabilizes returns during periods of challenging arbitrage trading conditions amid persistent low underlying equity volatility.

Market Movement and Impacts:
Throughout the second quarter of 2024, interest rates and corporate bond credit spreads remained largely unchanged, providing a neutral environment for convertible valuations. However, continued low equity volatility posed challenges for convertible arbitrageurs, particularly affecting small and mid-cap stocks. Historical volatility in indices like the Russell 2000 reached pre-Covid lows, impacting performance.

The Federal Reserve’s prolonged battle against inflation, with rates expected to remain elevated for longer, has dampened investment interest in small and mid-cap stocks. Underlying stocks of convertibles have notably underperformed major indices, with small-cap convertible stocks showing a decline of -11.3% year-to-date. Recent signs of easing economic data suggest the Fed may adjust its stance on inflation expectations and begin easing in September, potentially influencing future market dynamics and possibly leading to an inflection point for smaller cap stocks.

Fund Performance Breakdown:
The fund’s gross Profit & Loss (P&L) for the quarter highlights several contributing factors:

  • Appreciation of convertible bond prices relative to underlying stock
    hedges: +69 basis points.
  • Interest rate hedge: +5 basis points.
  • Trading activities: +6 basis points.
  • Yield/carry: +84 basis points.

Convertible New Issuance and Increased Refinancings:
Convertible new issuance remained robust in the second quarter of 2024, with 71 deals priced in the U.S., raising $41.2 billion year-to-date. A significant portion of proceeds has been directed towards refinancings, as many companies proactively extend debt obligations amid favorable cost differentials compared to straight debt. This trend presents opportunities for arbitrageurs to optimize their portfolios through strategic buying and selling.

The ongoing influx of new issuances typically enters the market at a discount to fair value, stimulating trading activity and maintaining attractive convertible prices. According to Bank of America, convertibles are currently trading 50-70 basis points below fair value on average, presenting favorable conditions for market participants.

Looking ahead, convertible arbitrage remains well-positioned. The convertible market is well balanced among credit trades, total return trades and in-the-money volatility trades. Strong issuance trends are expected to persist, bolstered by ongoing refinancings and a large maturity wall for convertibles through 2026. Despite prolonged low volatility, convertibles are priced conservatively relative to historical norms, offering compelling opportunities amidst wider spreads compared to high-yield bonds. According to Barclays Research, non-investment grade convertibles now trade at implied credit spreads of 518 basis points over, while the Bloomberg US High Yield B-rated bond spreads trades at 279 basis points (a spread difference near historic highs). If investment interest picks up for small/mid-caps, and/or we experience a bump in small/mid-cap volatility, convertibles are priced attractively and should outperform.


(Definitions, supporting data and risk disclosure below)

Quarter-End Performance for ARBIX:  As of 6/30/24, the 1 year, 5 year and 10-year annualized performance for the Absolute Convertible Arbitrage Fund was 6.04%, 4.50% and 4.13% 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 (gross and net) for Institutional Shares is 1.35% through August 1, 2024. 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, 2025 (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.

HEDGE FUND CONVERSION – In August 2017, a hedge fund managed by Mohican Financial Management LLC reorganized into the Fund. The Fund’s performance for periods prior to the commencement of operations is that of the hedge fund and is based on calculations that are different from the standardized method of calculations adopted by the SEC. The performance of the hedge fund was calculated net of the hedge fund’s fees and expenses. The performance of the hedge fund is not the performance of the Fund, has not been restated to reflect the fees, estimated expenses and fee waivers and/or expense limitations of the Fund, and is not necessarily indicative of the Fund’s future performance. If the performance of the hedge fund had been restated to reflect the applicable fees and expenses of the Fund, the performance may have been lower. The hedge fund was not registered under the Investment Company Act of 1940 (“1940 Act”) and was not subject to certain investment limitations, diversification requirements and other restrictions imposed by the 1940 Act and the Internal Revenue Code of 1986, which, if applicable, may have adversely affected its performance.


The Bloomberg Aggregate Bond Index (Bloomberg Agg) is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.

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.”

iBoxx High Yield Index consists of liquid USD high yield bonds, selected to provide a balanced representation of the USD high yield corporate bond universe
A Basis Point (or bps) is 1/100th of a percent.

Past performance does not guarantee future results. The Fund’s net asset value and investment return will fluctuate based upon changes in the value of its portfolio securities. There is no assur- ance that the Fund will achieve its investment objective, and an investment in the Fund is not by itself a complete or balanced investment program. For a complete description of the Fund’s principal investment risks please refer to the prospectus.

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,

government regulations, differences in accounting standards and other factors. Investments in emerging markets involve even greater risks. Small, mid and large cap stocks are subject to substantial risks such as market, business, size volatility, management experience, product diversification, financial resource, competitive strength, liquidity, and potential to fall out of favor that may cause their prices to fluctuate over time, sometimes rapidly and unpredictably. The Fund is actively managed and may experience high turnover. This may cause higher fees, expenses and taxes, which could detract from Fund performance.

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: Please read the prospectus carefully before you invest.

Distributor: Ultimus Fund Distributors, LLC

Absolute Convertible Arbitrage Fund, Absolute Investment Advisers and their logos are service marks of Absolute Investment Advisers LLC

4221 North 203rd Street, Suite 100, Elkhorn, NE 68022-3474

(888) 99-ABSOLUTE or (888) 992-2765