The Leatherback Long/Short Alternative Yield ETF (LBAY) (the “Fund”) net asset value (NAV) increased by 0.24% in the month of January, compared to an advance of 2.78% for the S&P 500 Index. LBAY paid our fiftieth consecutive monthly distribution, at $0.076 per share in January. This is a 2.68% SEC yield versus the S&P 500 Index dividend yield of approximately 1.24%, and the 10-Year US Treasury yield of 4.541%. For the year 2024, NAV for the Fund declined 3.46%, compared to an advance of 25.02% for the S&P 500 Index. NAV performance for the Fund to date since inception (November 16, 2020) has produced a 38.15% cumulative total return and an 8.15% annualized total return.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling (833) 417-0090. The gross expense ratio for the fund is 1.27%.
View LBAY standardized performance here.
The Fund’s NAV is the sum of all its assets less any liabilities, divided by the number of shares outstanding. The market price is the most recent price at which the Fund was traded.
MAKING VOLATILITY GREAT AGAIN!
The S&P 500 index1, led by artificial intelligence-related mega cap technology stocks, delivered a positive 25% total return in 2024. The year 2025 is off to an optimistic start with January up 2.4%. Donald Trump’s second term as President has begun and it has already been eventful. Shortly after his January 20th inauguration, Trump went right to work announcing a $500B partnership with OpenAI, Oracle and SoftBank to invest in Stargate to build out artificial intelligence (AI) infrastructure assets3. The news sent AI stocks and the S&P 500 index to new highs. Just days later, AI stocks were rattled by the emergence of the Chinese created DeepSeek-R1, an AI model that rivals current leading AI models at a fraction of the cost4. The world’s market cap leader, Nvidia (NVDA), whose business is closely tethered to AI capex, lost 17% of its market value as $590B in capitalization vanished in one day4! This disruption quickly called into question the trajectory of AI capex spending and the need for high-end GPUs.
Just one week later, Trump declared tariffs on Mexico, Canada and China sending the US Dollar higher and US stocks lower5. It is unknown how the tariff negotiations will play out, but we believe the first couple of weeks of Trump’s presidency are a prelude to the remainder of the year. There will be lots of headlines and volatility. In our opinion, the Trump agenda is likely to be supportive of deregulation and economic growth, and is also very likely to be inflationary. We expect 2025 to provide ample opportunities both long and short. We encourage investors to focus on individual stocks.
MAKE VALUE GREAT AGAIN
In our opinion, the last two years provided investors with a fertile investment landscape for speculative risk taking. Specifically, the benign inflation environment coupled with anticipated rate cuts helped drive P/E multiple expansion6 and was a powerful force for momentum and growth-oriented investors.
“Interest rates are to asset prices…like gravity is to the apple…They power everything in the economic universe.” – Warren Buffett7
Notably, after the Fed initiated 100 basis points of rate cuts beginning in September 2024, longer term rates rose 100 basis points. The market consensus for 2025 includes expectations for two rate cuts, with none until summer. In our opinion, rate cuts are unlikely to occur as Trump’s agenda may lead to economic growth and sticky inflation. The rise in long-term interest rates reflects the view that inflation may remain higher for longer.
“Core CPI, ex food and energy, 53 months now it has been above 3%. That measure is not getting towards the Fed’s target… it looks like inflation is bottoming out at levels unacceptably high for the Fed… the inflation rate is now a 3 to 4% inflation rate and depending on which measure you are using, that’s about where we are right now around 3% and this is the world we have right now in terms of inflation” – Jim Bianco, Doubleline Roundtable January 20258, 9
We remind investors that in the year 2022, markets were ravaged by inflationary forces and interest rate increases. Trump’s agenda is certainly pro-growth, but his rhetoric surrounding trade policies may bring unintended consequences. As Trump begins his term, he’s been handed one of the most expensive stock markets in history that is also much more expensive than in his first term. 10
“If I look at the stock market, January of 2017, kind of average P.E.s were around 19, today they're 25. We're a full 30 percent higher than we were in 2019. We could have a 30 percent correction in the stock market and just be back to slightly overvalued. So, Trump 2.0, I think Trump being Trump, I don't know if it will play as well as it did in 1.0, because there's no room for mistakes.” – Paul Tudor Jones11
Current market valuations have benefited from the hope of lower interest rates. In our opinion, we think that the economy is very tied to asset markets. This wealth effect from higher equity markets, cryptocurrencies and home prices has given investors and households paper wealth that is driving consumption and a stronger than feared economy.
“We are living in an asset driven economy. It’s the asset markets that are driving the economy. It’s not the economy driving the asset markets. And if asset prices go down, the economy will soften… it’s a roller coaster year that I am expecting.” – Felix Zulauf12
We caution investors that while the economy may have strong support from the new Presidential administration, there’s little margin for error. In our opinion, value-oriented stocks appear attractive relative to growth stocks. Value stocks tend do relatively much better than growth in inflationary environments, including 2022. High valuation multiples tend to contract as inflation levels rise providing downside protection for value stocks, relative to high multiple growth stocks. Finally, higher rates mean a higher discount rate, resulting in lower present value cash flows for longer duration stocks.
PORTFOLIO REVIEW14*
Our current long portfolio is comprised of what we believe to be quality compounders prudently deploying cash through stock buybacks and dividends. We think several of our long positions could also be identified as special situations. Below we list several current long ideas, and one short position.
We continue to maintain a long position in 3M (MMM). MMM recently reported solid 4Q 2024 results which closes out a positive 2024 in the first year under the helm of new CEO William Brown. In 2024, MMM spun off its healthcare division into a new publicly traded company, Solventum (SOLV), upgraded its management team and achieved significant operational gains leading to a 46% total shareholder return on the year. We think there is considerably more upside as management can now focus on its core businesses leading to productivity gains and earnings and dividend growth and ongoing share repurchases. The stock trades at a discount to peers and we view an upcoming Investor Day in February to provide more transparency into business prospects.
Newmont Mining (NEM) continues to be a top holding for the Fund. Despite gold prices rising 27% in 2024, NEM struggled in 2024 declining by 7.9% on the year, and re-rating down 30% in the 4Q. NEM was our worst detractor on the long side in 2024 which is frustrating as gold performed remarkably well. NEM struggled to integrate its Newcrest acquisition and disappointed investors with 3Q results. In response, NEM has announced a $2B share repurchase program. We remain convicted in NEM and it remains one of our largest holdings.
Comcast is both cheap and has many catalysts in 2025. At just 8x earnings, CMCSA maintains a 3.9% dividend yield and has been buying back stock with shares outstanding shrinking from 4.65B in 2021 to 3.77B today. Epic Universe, a new theme park at Universal Orlando, is set to open in May of this year. Next, the company is preparing to spin-off its cable networks MSNBC, USA, CNBC, E!, Oxygen, Syfy, Golf Channel and other digital assets. We think the valuation is too attractive to ignore and sentiment on the company should improve as 2025 evolves.
On the short side of the ledger, we recently initiated a short position in Robinhood Markets (HOOD), which is a retail-based brokerage firm that is creating a “modern financial services platform for everyone”. HOOD maintains an over $48B market value and is expected to generate just under $2B in revenues for the year while catering to its active retail client. These metrics compare to industry giants Ameriprise at $53B market value and $17B in revenues and Raymond James Financial at $34B market value and $13B in revenues. In its most recent reported quarter, HOOD generated $637mn in revenues, with over $200mn in options trades. Based on our estimates, the average account size at HOOD is just over $6,000 per active client. Additionally, the company has benefited from an increase in its crypto trading business. While equities and crypto have performed quite well recently and HOOD has benefited by increased retail trading, we think the long-term outlook of HOOD does not warrant an over 50x P/E multiple.
View LBAY top 10 holdings here. Holdings are subject to change. Characteristics and metrics of the companies shown are for the underlying securities in the fund’s portfolio and do not represent or predict the performance of the fund. There is no guarantee that a company will pay or continually increase its dividend.
FINAL THOUGHTS
We hope our investor partners enjoy our monthly perspectives. We are finding many compelling ideas both long and short and we look forward to continuing our dialogue in the weeks and months ahead.
