Episode 16: 2022 Outlook - Headwinds for Core Bonds and a Fixed Income Alternative to Consider
In this episode, Portfolio Manager Gregg Loprete discusses some of the headwinds facing core bond holdings in 2022, and how the Water Island Credit Opportunities Fund - which exhibits a risk-reward profile similar to core bonds - has historically generated positive returns in rising interest rate environments and helped mitigate duration and credit risk.
[Transcript]
The discussion of market trends and companies throughout this podcast are not intended as advice to any person regarding the advisability of investing in any particular security or strategy. Any securities mentioned are selected for discussion purposes only and may not represent current holdings of Water Island Capital, LLC ("Water Island") or The Arbitrage Funds. Our views, opinions, and estimates – including any forward-looking statements – are a reflection of our best judgment at the time of recording and are subject to change based on market and other conditions. Water Island is under no obligation to update or revise any such views or statements, except as required by law. Past performance is no guarantee of future results. Additional information about Water Island can be obtained from our Form ADV, which is available at adviserinfo.sec.gov. View top ten holdings. Visit the glossary for definitions of terms.
View the Water Island Credit Opportunities Fund’s standardized returns. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling (800) 295-4485. Returns shown above include the reinvestment of all dividends and capital gains. Total Annual Fund Operating Expenses for ACFIX, ARCFX, and AGCAX are 1.52%, 1.77%, and 1.77%, respectively. The adviser has contractually agreed to waive fees in excess of 0.98%, 1.23%, and 1.23% for ACFIX, ARCFX, and AGCAX, respectively, until September 30, 2022, excluding the effects of taxes, interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, and other costs incurred in connection with the purchase or sale of portfolio securities. Without such fee waivers, performance numbers would have been reduced. Class A shares have a maximum front-end sales charge of 3.25%. A deferred sales charge of up to 1.00% may be imposed on purchases of $250,000 or more of Class A shares purchased without a front-end sales charge that are redeemed within 18 months of purchase.
RISKS: Investments are subject to risk, including possible loss of principal. There can be no assurance that the fund will achieve its investment objectives. The fund uses investment techniques and strategies with risks that are different from the risks ordinarily associated with credit investments. Such risks include event-driven risk; merger arbitrage risk (in that the proposed reorganizations in which the fund invests may be renegotiated or terminated, in which case the fund may realize losses); credit risk; convertible security risk; liquidity risk; market risk; sector risk; interest rate risk; short sale risk (in that the fund will suffer a loss if it sells a security short and the value of the security rises rather than falls); hedging transaction risk; large shareholder transaction risk; leverage risk; high portfolio turnover risk (which may increase the fund’s brokerage costs, which would reduce performance); counterparty risk; swap risk; options risk; preferred security risk; investment company and ETF risk; derivatives risk; LIBOR rate risk; currency risk; foreign securities risk (in that the securities of foreign issuers may be less liquid and more volatile than securities of comparable US issuers, and may be subject to political uncertainty and currency fluctuations); active management risk; and temporary investment/cash management risk. Risks may increase volatility and may increase costs and lower performance.
Water Island Credit Opportunities Fund top ten holdings as of November 30, 2021: Chobani LLC / Chobani Finance Corp Inc 7.5% 4/15/2025; Five9 Inc 0.5% 6/1/2025; Flexion Therapeutics Inc 3.375% 5/1/2024; Fresh Market Inc/The 9.75% 5/1/2023; Granite Merger Sub 2 Inc 11% 7/15/2027; Hill-Rom Holdings Inc 4.375% 9/15/2027; Meredith Corp 6.875% 2/1/2026; NeuStar Inc FR 8/8/2024; Tronox Inc 6.5% 5/1/2025; Zendesk Inc 0.625% 6/15/2025. Top ten holdings represent 33.5% of the portfolio. Holdings are subject to change. Current and future holdings are subject to risk.