The Nakoma Absolute Return Fund's investment approach is comprised of three integrated processes: dynamic asset allocation, fundamental stock selection and risk management.

 

With respect to dynamic asset allocation, the Adviser assesses expectations for and trends in three categories of factors that the Adviser believes influence stock market returns: economic growth and corporate profits; interest rates and inflation expectations; and investor sentiment and stock market valuations.  All else being equal, when the trends in these categories are better than expected, the Adviser will increase the Fund's net exposure to the stock market and when trends in these categories are worse than expected, the Adviser will decrease the Fund's net exposure to the stock market.

 

The fundamental stock selection process is designed to identify companies with the potential for positively or negatively surprising business results over a six- to eighteen-month time horizon.  For each stock, the Adviser monitors key business drivers (e.g. macroeconomic, secular trends, industry dynamics and company specific events) that the Adviser believes will affect the underlying company's business over the investment time horizon.  The Adviser believes that when a company's key drivers exceed expectations, the company's share price can be expected to increase until investor expectations and actual company performance converge.  Conversely, if a company's results fall short of investors' expectations, its share price may decrease until investor expectations converge with actual performance.  The Adviser's analysis of each opportunity (long or short) considers the level of investor expectations in assessing the potential reward for a correct call versus the potential loss for an error.  Therefore, the strategy is not short-term trading oriented.  Rather the strategy relies on fundamental analysis of a company's future business prospects.  

 

The Fund's risk management process analyzes sources of volatility in the portfolio (e.g. sector, capitalization, style and interest rate sensitivity) in an effort to match Fund risk exposures with the Adviser's overall market view and avoid unintended risk exposures.  Additional risk management techniques are employed in a further effort to achieve the Adviser's low volatility return objective.