The Merk Absolute Return Currency Fund (MABFX) seeks to generate positive absolute returns by investing in currencies.
The Merk Absolute Return Currency Fund is a pure play on currencies, aiming to profit regardless of the direction of the U.S. dollar or traditional asset classes.
To help give investors a better understanding of the Fund’s currency allocations, please consider the allocation chart below. To allow us to communicate the Fund’s currency allocations in as timely a manner as possible, we depict approximate currency exposure bands. This chart was most recently updated on September 1, 2010. For the most recent month end allocation, please click here.
Please note that currency exposure bands shown above are as of September 1, 2010 and may change without notice.
Model Explained
The discussion below is intended for those interested in details on how the Fund's investment process is implemented. For a more general discussion, please see the Adviser's process and prospectus.
The quantitative factors employed are grouped into different sub-strategies that we call Absolute Valuation; Absolute Momentum; Absolute Carry; and Absolute Resources. Below is a discussion of how these groups influence the currency allocation as of September 1, 2010:
Absolute Valuation is an analysis of purchasing power differentials across regions. Currencies favored include: Swedish krona; disfavored currencies include: the U.S. dollar
Absolute Momentum is based on a trend following methodology. Currencies favored include: Swiss franc, Japanese yen; disfavored currencies include: the U.S. dollar
Absolute Carry is based on an analysis of interest rate differentials. Currencies favored include: Canadian dollar, Swiss franc, British pound, Japanese yen; disfavored currencies include: U.S. dollar
Absolute Resources is based on an analysis of commodities and natural resources, as well as world trade and their impact on currencies. Currencies favored include: Swiss franc, Japanese yen; disfavored currencies include: U.S. dollar
Note that different models may offset currency exposures; as an example, a disfavored currency exposure from the Merk Absolute Momentum model may be more than offset by a positive output from the Merk Absolute Carry model. Also note that the above list may not list all currencies that are favored or disfavored. Currency exposure may change without notice.
The Fund publishes its currency exposure on a monthly basis. Below is the Fund’s currency exposure as of July 31, 2010. Please note, the currency exposures depicted below are as of the most recent month end. For an updated general discussion of the Fund’s currency exposures, please see the Currency Allocation section.
All currency exposure figures displayed are relative to the U.S. dollar (USD). As such, the USD exposure is the inverse of each above figure. For example, -6.2% AUD exposure means the Fund had a 6.2% exposure to the USD. Total net USD exposure can be derived by taking the inverse sum of all individual currency exposures shown above. Total net USD exposure as at July 31, 2010, was 16.9%.
Below is a discussion of the Fund’s key currency exposures as of July 31, 2010.†
The Funds largest long position at the end of the month was the Swedish krona (SEK). The SEK was the strongest performing currency amongst the G10 currencies through the month of July, returning 8.10%, and hence contributed positively to overall Fund performance. The Absolute Valuation strategy favored the SEK, as did the risk overlay.
The Fund also benefited from long positions in the Swiss franc (CHF) and the British pound (GBP) through the month. The Absolute Resources strategy favored the CHF while the Absolute Momentum strategy favored the GBP. The CHF returned 3.48% during the month of July and the GBP returned 4.98%.
The Fund held short positions in the euro (EUR) and the New Zealand dollar (NZD) through July, which detracted from performance, as both currencies appreciated. The euro returned 6.65% and the NZD returned 6.03% during the month. The Absolute Valuation and Absolute Momentum strategies both disfavored the EUR, while the Absolute Valuation and Absolute Resources strategies both disfavored the NZD.
Please note that currency exposures listed above are as of July 31st, 2010 and may change without notice. For an updated general discussion of the Fund’s currency exposures, please see the Currency Allocation section.
The Fund publishes its net open forward contracts on a monthly basis. Net open forward contracts as of July 31, 2010 are shown below2:
Currency
Settlement
Percent
AUD
08/20/10
-6.2%
CAD
08/20/10
-16.2%
CHF
08/20/10
20.6%
EUR
08/20/10
-29.9%
GBP
08/20/10
15.3%
JPY
08/20/10
5.0%
NOK
08/20/10
-21.4%
NZD
08/20/10
-25.4%
SEK
08/20/10
41.3%
The Fund publishes its security holdings on a monthly basis. Security holdings as of July 31, 2010 are shown below:
Holding
Currency
Maturity
Percent
U.S. T-Bill
USD
09/23/10
30.5%
U.S. T-Bill
USD
10/28/10
28.0%
U.S. T-Bill
USD
01/20/11
22.9%
U.S. T-Bill
USD
01/27/11
17.8%
The Fund accepts investments in the following minimum amounts:
Minimum Initial Investment
Minimum Additional Investment
Standard Accounts
$2,500
$100
Traditional and
Roth IRA Accounts
$1,000
$100
Accounts with
Systematic Investment Plans
$1,000
$100
Qualified Retirement, Pension
or Profit Sharing Plans
$1,000
$100
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Currency symbols: AUD Australian dollar; CAD Canadian dollar; CHF Swiss Franc; EUR euro; GBP British pound; JPY Japanese yen; NOK Norwegian krone; NZD New Zealand dollar; SEK Swedish krona; USD U.S. dollar
†Source for all currency data: Bloomberg. All performance figures versus U.S. dollar, unless otherwise stated.
1Assets reflect investor and institutional shares combined
2The Fund may invest substantially in forward foreign currency contracts or other derivative instruments. Because delivery and settlement of forward contracts takes place in the future, the Fund will retain the assets it intends to use to settle the contracts and invest these assets in various U.S. fixed income instruments that the Adviser expects will generate income for the Fund. Under such circumstances, the Fund may not have a material portion of its assets invested in the securities of issuers located in markets outside of the U.S. The value of the Fund’s investments in U.S. fixed income instruments (to the extent used to cover the Fund’s net exposure under the forward foreign currency contracts and similar instruments) and forward contracts and other instruments that provide investment exposure tocurrencies will be counted for purposes of the Fund’s 80% policy.
As with any mutual fund product, there is no guarantee that the fund will achieve its goals. Investment return and principal value will vary and shares may be worth more or less at redemption than at original purchase; the Fund is not a substitute for a money market fund. Investors should consider the investment objectives, risks and charges and expenses of the Merk Absolute Return Currency Fund carefully before investing. The prospectus contains this and other information about the Merk Absolute Return Currency Fund. To obtain a prospectus, please download it now or call (866) MERK FUND. The prospectus should be read carefully before investing.
Since the Fund primarily invests in foreign currencies, changes in currency exchange rates will affect the value of what the Fund owns and the price of the Fund’s shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Fund is subject to interest rate risk which is the risk that debt securities in the Fund’s portfolio will decline in value because of increases in market interest rates. The Fund may also invest in derivative securities which can be volatile and involve various types and degrees of risk. For a more complete discussion of these and other Fund risks please refer to the Fund’s prospectus.
Before investing you should carefully consider the Fund's investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by clicking here. Please read the prospectus carefully. Foreside Fund Service, LLC, distributor.
Fact Sheet
