Stocks are down – but so are bonds and crypto. With inflation wreaking havoc on cash, is there still any safe haven for investors?
Is this a universal sell-off?
The sell-off in capital markets has continued, following the Federal Reserve’s early May announcement, raising the Fed Fund’s rate 50 basis points but taking off the table, at least for now, more aggressive 75 basis point increases. While markets reacted positively to the dovish sentiment of the announcement, there seems to have been an “upon further thought” reckoning.
• S&P 500: the Standard and Poor’s 500 index. • NASDAQ: the NASDAQ Composite Index. • BTC: Bitcoin.
• SOLRX return since inception on 12/31/21 through 3/31/22: -0.40% • SOLRX gross expense ratio: 2.51% • SOLRX net expense ratio: 2.23%* • LBUSTRUU: the Bloomberg U.S. Agg Total Return Value Unhedged index • Returns are net of fees.
Past performance is no guarantee of future results. The returns represent past performance and current performance may be lower or higher than performance quoted above. Investment return and principal value fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. For the most recent month-end performance of SOLRX, call (844) 4-FINITE.
Since the market close on May 4th (through June 10th), the S&P 500 is down 9.29% and the NASDAQ is down 12.53%. While the stock and bond markets often act to balance one another, that hasn’t been the case this time as bond yields have risen and prices declined across the curve – the U.S. Aggregate Bond Index is down 0.47% over the same period, but down 10.65% year to date. Even crypto currencies, previously a somewhat safe haven during risk-off markets, have increasingly become correlated with the stock market as Bitcoin is down 26.96% and Luna (a cryptocurrency, once with a $40 billion market cap, that recently crashed to $0) is virtually non-existent.
(Compliance Note: this paragraph and associated charts are not intended as a direct comparison between SOLRX and any cryptocurrency or market index, save for the SOLRX benchmark LBUSTRUU.)
Enter private credit: this is what “non-correlated” means.
Two questions seemingly on everyone’s mind this week are, “where is a safe, or at least safer, place to invest and wait out the storm?” and “how should I think about diversifying my portfolio for the longer term?” Fortunately, finding relief from the downturn isn’t exactly a needle in a haystack effort. Cash, while certainly safer, isn’t a great parking spot in a high inflationary environment as its purchasing power is eroded daily. Private credit, however, can provide current income, and while less liquid than publicly traded securities and funds, can provide relief from the volatility of the public markets (because high-quality borrowers tend to keep making loan payments even when the stock market is down). While portfolio investment valuations can vary due to interest rate changes or credit concerns, the longer-term investment horizon the structure provides can protect the portfolio from forced selling of assets at distressed prices in unstable markets to accommodate investor outflows.This longer-term focus also makes private credit well-suited to potentially help diversify and add stability to your portfolio. Many private credit managers tend to focus more deeply on credit fundamentals and can have a longer-term focus relative to their public asset manager counterparts. Private asset investment managers don’t tend to invest in paper securities which rely of the general faith of the borrower to be repaid, but rather make loans secured by real assets. Think of home mortgages. Yes, the bank is hopeful the borrower will make timely mortgage payments, but in the event of a default the bank can take possession of the home, sell it, and pay itself back the amount of principal and interest it is owed before retuning the remaining proceeds to the homeowner. Because of the high quality of many secured borrowings, the prices of these assets tend to be less volatile.
Weeks like this, people finally start paying attention to the term “non-correlated returns.” If a private credit fund is comprised of senior secured corporate loans, and those corporate borrowers keep making their loan payments, then the fund will likely continue performing with low correlation to the public markets.
With SOLRX, anyone can access private credit.
SOLRX is an interval fund focused on private credit. While interval funds have many of the same desirable features as private funds discussed above, they also have the benefit of offering periodic liquidity at the investor’s discretion which private funds do not (liquidity in private investing is at the discretion of the investment manager).
In practice, that means you can invest in private credit through SOLRX, but instead of waiting several years to cash out, you can aim to sell at least some of your shares back to the fund every three months. Also, instead of a million dollar minimum investment with income and net worth restrictions, you can invest in SOLRX with just $500. It’s designed to maximize access to a once-exclusive asset class.
As you’ll note from the performance table above, many of the most popular asset classes have suffered in the recent turmoil. While never pleased with a negative return, we are pleased with our relative performance (only down 0.20% since May 4) and continue to have conviction in our investments, though a couple have declined slightly as a result in the rise of interest rates.
You can learn more about our investment strategy here.
Required Disclosures:
Investors should carefully consider the investment objective, risks, charges, and expenses of the Fund before investing. This and other important information about the Fund is in the prospectus which can be obtained by contacting your financial advisor or by calling 844-4-FINITE. The prospectus should be read carefully before investing.
The Finite Solar Finance Fund is distributed by Foreside Fund Services, LLC.
Some of the Risks of Investing in the Fund:
An investment in the Fund is speculative with a substantial risk of loss. Investors should consider their investment goals, time horizons and risk tolerance before investing in the Fund. An investment in the Fund is not appropriate for all investors, and the Fund is not intended to be a complete investment program. See “Risk Factors” within the Prospectus to read about the risks you should consider before buying the Fund’s Shares.
The Fund is newly organized, and its Shares are not listed on any securities exchange and no market for the Shares exists or is expected to develop. In addition, the Fund’s investments in Solar Assets will primarily be investments in Solar Loans and other alternative lending-related securities, which have special risks as described in more detail with the Prospectus (linked above).
Before investing, you should read the Fund’s Prospectus regarding the Fund’s risks. These risks include, but are not limited to, those outlined below:
An investment in the Fund is not suitable for investors who need certainty about their ability to access all of the money they invest in the short term. You may not have access to the money you invest for an extended period of time.
The Fund has implemented a Share repurchase program, however, the Fund is not required to repurchase more than 5% of its outstanding Shares each quarter. Shares will not be redeemable at a Shareholder’s option nor will they be exchangeable for Shares of any other fund. Investors should therefore consider Shares of the Fund to be an illiquid investment. You should not expect to be able to sell your Shares (other than through the repurchase process), regardless of how the Fund performs.
Because you will be unable to sell your Shares at the time of your choosing or have them repurchased immediately, you will find it difficult to reduce your exposure on a timely basis during market volatility.
Although the Fund is not permitted to invest in loans that are of subprime quality at the time of investment, an investment in the Fund’s Shares should be considered speculative and involving a substantial degree of risk, including the risk of loss of investment. There can be no assurance that payments due on loans or other alternative lending-related securities in which the Fund will invest will be made.
At any given time, the Fund’s portfolio may be substantially illiquid and subject to increased credit and default risk. The Shares therefore should be purchased only by investors who could afford the loss of the entire amount of their investment.
The Fund intends to accrue and declare dividends daily and distribute them on a quarterly basis; however, the amount of distributions that the Fund may pay, if any, is uncertain. The Fund may pay distributions in significant part from sources that may not be available in the future and that are unrelated to the Fund’s performance, such as from offering proceeds, and borrowings. A portion or all of any distribution of the Fund may consist of a return of capital and may result in potentially adverse tax consequences to the Fund or its shareholders.
The Fund’s distribution policy could result in a return of capital, resulting in less of a shareholder’s assets being invested in the Fund and, over time, potentially causing the Fund’s expense ratio to increase.
The distribution policy also may cause the Fund to sell a security at a time it would not otherwise do so.
If the borrower of the loan or other alternative lending-related security in which the Fund invests is unable to make its payments on a loan, the Fund may be greatly limited in its ability to recover any outstanding principal and interest due under such loan, as (among other reasons) the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or undercollateralized, and/or it may be impracticable to commence a legal proceeding against the defaulting borrower.
Substantially all of the Solar Assets in which the Fund invests will not be guaranteed or insured by a third party or will not be backed by any governmental authority.
Prospective borrowers supply a variety of information regarding income, occupation and employment status (as applicable) to the alternative lending platforms that may originate or source loans. As a general matter, platforms do not verify the majority of this information, which may be incomplete, inaccurate, false or misleading. Prospective borrowers may misrepresent any of the information they provide to the platforms.
Under the 1940 Act, the Fund may utilize leverage through the issuance of preferred stock in an amount up to 50% of its total assets and/or through borrowings and/or the issuance of notes or debt securities in an aggregate amount of up to 33 1/3% of its total assets which could magnify losses as well as gains. There can be no assurance that any leveraging strategy the Fund employs will be successful during any period in which it is employed.
The Fund’s gross expense ratio is 2.51% without leverage, or estimated 3.23% with 25% leverage. Expense ratios are annualized and calculated as a percentage of estimated average total assets.
