Holdun Income Fund

Executive Summary Q2 2020

Fund Update

The Holdun Income Fund (“HIF”) continued to rebound from the March 2020 NAV reduction. The Fund returned 2.62% over Q2 to bring the current NAV to 91.90 as of 30 June 2020.

The HIF is comprised of securities that benefit from rising rate environments as well as securities that benefit from a decreasing rate environment. This balanced approach has served well during historical interest rate environments. That being said, the recent decline in interest rates due to the impact of Covid-19 has been unprecedented. As seen in a chart of the 70-year historical yield of the 10-Year Treasury, we are at a 70-year low in yield, 0.63%.

This dramatic decrease in interest rates has disproportionally impacted the valuation of securities the HIF holds that offset rising interest rates. Further, over the period since the last HIF May NAV memo – May 31st, 2020 to June 30th, 2020 – the 10-Year Treasury yield rose from 0.65% to 0.90% only to retreat back to 0.65%.

The Holdun Income Fund portfolio is currently generating approximately 35-45 basis points per month in cash flow – hence the gradual monthly increase in the NAV without any movement in interest rates.

Forward-looking, the HIF is positioned for continued benefit from the net cash flow generated from the portfolio of securities held. If interest rates remain unchanged at current historically low levels, a continued rebound in the NAV is expected at a similar rate as experienced over the past few months. However, if interest rates in general rise from this all-time low, the increase in the NAV will be accelerated as the securities structured to benefit from rising rates begin to increase in valuations while continuing to produce significant cash flow. Thus, compared to other similar duration AAA-rated securities yielding less than 1%, the HIF presents as an attractive investment at the current NAV – 4.85% annualized yield from current cash flow with tremendous upside potential when interest rates begin to increase.

Return Analysis

Portfolio Benchmark
Compound Return -2.06% 4.05%
Compound Growth of $100,000 $92,185 $116,845
Volatility 15.60% 5.58%
Percentage Month Positive 95.7% 57.4%

Fund Performance:

*Since Inception returns as of the 31st of July 2016.

Trailing Returns (Net) 1-month 3-month 1-Yr 3-Yr Since Inception
Portfolio 0.39% 2.62% (22.95%) (4.43%) (2.06%)
Barclays 7-10 Year Treasury 0.05% 0.89% 12.75% 6.82% 4.05%
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