Monthly Commentary - There's Nothing to See Here

August 24, 2022

The Leatherback Long/Short Alternative Yield ETF (LBAY) (the “Fund”) net asset value (NAV) advanced by 1.38% in July, compared to 9.22% for the S&P 500 Index. LBAY paid our twentieth consecutive monthly distribution, at $0.065 per share in July. This is a 2.56% SEC yield versus the S&P 500 Index dividend yield of approximately 1.56%, and the 10-Year US Treasury yield of 2.651%. Year to date as of July 31, 2022, NAV for the Fund has returned 13.31%, compared to a decline of 12.58% for the S&P 500 Index. NAV performance for the Fund to date since inception (November 16, 2020) has produced a 44.74% cumulative total return and a 24.23% 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 1.43%.

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.




The debate is raging – How do you define a recession? Policymakers are demonstrating impressive determination in avoiding admission we may have tiptoed, or cannonballed, into one. The market seems to have decided that the US Federal Reserve Board (the Fed) has “pivoted.” The renewed reaction has been via bidding up risk assets again with fervor.

“It is, to me, a glaring market mispricing…market participants are conditioned from previous cycles to expect the Fed to pivot”3 - Rebecca Patterson

Unfortunately, at the same time, the inversion in the yield curve has accelerated. Meanwhile, traditional active* portfolio managers searching for value find themselves humbled watching passive and quantitative strategies move equity market beta* around indiscriminately. We believe the market set up is opportune for long/short strategies as idiosyncratic ideas percolate in clear sight. We think the prudent move is to be patient and wait for fat-pitches before chasing beta as money flows back into risk assets. Our Fund’s short exposure was recently at its highest since we launched and net exposure is at its lowest.


Passive investment management is based on the efficient market hypothesis, which states that a stock’s current price reflects all relevant information about its current and future earnings. The stock of Bed Bath & Beyond Inc. (BBBY) has been an interesting case study. While we have no position in BBBY, we have incredulously observed the market action in the name as the stock’s value has fluctuated by 10 to 40% on multiple days over the last month. BBBY at one point in August had risen by almost 400% since the beginning of July as investors “efficiently” re-assessed all relevant information on the company as news became available.

“Imagine spending 4 years and $150,000 to learn about the efficient market hypothesis just to watch [BBBY] squeeze to infinity.”4

Since mid-June the entire equity market structure has rallied, with companies that performed the worst for the first half of the year rallying the most. Notably, Michael Burry, the investor who presciently called the housing crisis over a decade ago, has expressed doubt around those calling the 20% rally off the recent June 2022 low in the NASDAQ5 a “bull market.” He has pointed out that a handful of similar or larger rallies off near-term lows took place after the 2000 peak on its way down almost 78% to bottom in 2002.6 We share his skepticism and think it may be too soon to start making the calls for a new or renewed bull market.

Many of the earnings season calls had management teams that are anchored to a belief that the consumer will remain impervious and out in force. Unfortunately, we are not as optimistic. We think the increase in short-term borrowing costs, coupled with elevated prices (sticky or not), are reducing discretionary spend. While the consumer may not have cut back on total dollar amounts spent, we think they are buying less quantities of the goods and services that have allowed many companies to report results that were not “as bad as feared”. We think this inflationary impact decline may be a headwind for those calling for a second wave of sustained growth. A possible double whammy could be unfolding with housing prices starting to feel less frothy and could drive a broader sentiment shift. We believe a change in enthusiasm levels may show up during the next few earnings cycles. This may be the case even though the companies, and the analysts that follow them, lower the bar on profitability and performance metric outlooks.


To recap the strategy of LBAY, over the long term the Fund seeks capital appreciation and income generation. We attempt to do this while taking a view of reducing volatility. We currently maintain a long book of securities that we expect to compound while kicking off income over-time. As a complement, we manage a short book of securities that we are optimistic will generate alpha*, while attempting to lower the beta of the overall portfolio. In our opinion, managing a short book requires an intense risk management approach. We believe our short selling expertise differentiates us from most of our peer universe as we have almost two decades of short selling knowledge.

We currently manage a short book of around 20 short positions that typically center around 1.5% in position sizing, with a range of approximately 1% to 2% in size. We manage this short book aggressively, and the latest market rally has created what we believe to be ample short ideas. Some of our favorites in this current environment include $25B market cap Doordash, Inc. (DASH), $8B market cap Draftkings Inc. (DKNG), and $2.8B+ market cap Trupanion, Inc. (TRUP). Interestingly, a commonality between them is they are yet to produce an annual profit as public companies. Yet they still manage to collectively maintain an aggregate market cap of nearly $35B. As of the time of this writing, we maintain a short position in each.

On the long side of the ledger, we have taken some profits in H&R Block, Inc. We think this is a prudent reduction in sizing of the position as it is now up about 100% on the year. We view the recent headlines about the growth in Internal Revenue Service (IRS) staff as a bullish sentiment for the tax-preparer and expect to maintain a position. Finally, we have recently raised our allocation to cash, which we expect to deploy as idiosyncratic ideas present themselves. However, we will be patient and believe many of these opportunities may be more attractive as the year progresses.

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.


We hope our investor partners have enjoyed 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.

There were so many feeble efforts to deal with inflation in the 1970s, they said ´don't tighten monetary policy too aggressively, you will get some unemployment,´- so we went a decade that way, and we ended up with more inflation and more unemployment." - Paul Volcker

*Definitions: Active management does not seek to replicate the performance of a specified index. Beta measures the volatility of the security price relative to the volatility in the market index. Beta is the percent change in the price of the security given a 1% change in the market index. Alpha-generation refers to a strategy that seeks to generate excess returns or value without additional risk.

1 The S&P 500 Index includes 500 leading companies and covers approximately 80% of the available market capitalization. The S&P 500 Dividend Yield is the estimated sum of all dividends paid by the index’s stocks in the last 12 months, divided by the index market capitalization as reported by the S&P. The dividend yield does not represent or predict the performance of the Fund. Indexes are unmanaged and it is not possible to invest in an index.

2 The 30-day SEC yield is calculated from the 30 days ending on the last day of the previous month. This figure approximates the yield an investor would receive in a year, assuming that each bond in the portfolio is held until maturity. View the 30 day SEC yield here.

3Source:, Aug 20, 2022

4Source: @fintwit_news, Aug 17, 2022

5The NASDAQ-100 Index is a modified capitalization-weighted index of the 100 largest and most active non-financial domestic and international issues listed on the NASDAQ. No security can have more than a 24% weighting. Source: Bloomberg. Indexes are unmanaged and it is not possible to invest in an index.

6Source: @michaeljburry, Aug 10, 2022

7View 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. Section Source: Bloomberg unless otherwise noted.

8Paul Volcker quote Source: @Convertbond, Aug 17, 2022

Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.