SNAPSHOT

The Fund seeks to achieve total return through a combination of income and capital appreciation. It pursues this objective by investing its assets primarily in stocks and bonds, in consideration of prevailing valuations and estimated expected returns in these markets, adding emphasis on risk-management to adjust exposure in market conditions that suggest risk-aversion or speculation by market participants.

INCEPTION DATE
August 2019

PORTFOLIO MANAGER
John P. Hussman, Ph.D.

Objective

Hussman Strategic Allocation Fund seeks to achieve total return through a combination of income and capital appreciation. It pursues this objective by investing its assets primarily in stocks, bonds, and cash equivalents in consideration of prevailing valuations and estimated expected returns in these markets, with added emphasis on risk-management to adjust the Fund’s investment exposure in market conditions that, in the view of the investment adviser, suggest risk-aversion or speculation by market participants.

Investment Strategy

The Fund pursues its investment objective by investing its assets primarily in common stocks, bonds, and cash equivalents (such as U.S. Treasury bills and shares of money market mutual funds); and aligning its allocations to these asset classes based on prevailing valuations and estimated expected returns in these markets.

The investment strategy adds emphasis on risk-management to adjust the Fund’s exposure in market conditions that suggest risk-aversion or speculation among market participants. The Fund may use options and futures on stock indices and Treasury bonds to adjust its relative investment exposures to the stock and bond markets, or to reduce the exposure of the Fund’s portfolio to the impact of general market fluctuations when market conditions are unfavorable in the view of the investment adviser.

The Fund varies its investment exposures to stocks, bonds and cash equivalents based on the investment adviser’s analysis of prevailing investment conditions. The Fund’s asset allocation approach combines two components:

1) a value-focused asset allocation component that jointly considers prevailing stock market valuations and interest rates; and

2) a risk-management component that is intended to adjust the sensitivity of the portfolio to general market fluctuations when prevailing market conditions suggest risk-aversion or speculation among market participants.

The Fund’s assets are allocated with the goal of providing for the ongoing long-term inflation-adjusted spending needs of investors, rather than focusing its investment goal on a specific future year or “target date.” The investment adviser regularly determines the value-focused asset allocation based on its estimates of average annual expected returns for stocks, bonds, and cash equivalents over varying time frames, in light of prevailing stock market valuations and interest rate levels. The value-focused allocation reflects the extent to which each respective asset class is expected by the investment adviser to provide the highest expected returns, adjusted for risk, over these varying time frames.

The risk-management component of the asset allocation approach is further intended to reduce the sensitivity of the Fund’s portfolio to the impact of general market fluctuations when, in the judgment of the investment adviser, prevailing conditions suggest that market participants are inclined toward risk-aversion, and to increase the sensitivity of the portfolio to general market fluctuations when, in the judgment of the investment adviser, prevailing conditions suggest that market participants are inclined toward speculation.

Investment Considerations

The Fund’s investment strategy emphasizes valuation as a principal driver of long-term investment returns, while also recognizing that investment outcomes over shorter horizons can be significantly affected by periods of risk-aversion or speculation among market participants. In the analysis of stock market conditions, valuation considers the relationship of major stock indices to the stream of earnings, revenues, dividends and cash flows expected in the future in an attempt to measure the underlying value of stocks and the long-term returns implied by their current market prices. For bonds, valuation is measured primarily by yield-to-maturity, adjusted for estimated risk, particularly in the case of corporate bonds.

The investment adviser uses information on prevailing valuations to estimate an expected future trajectory of average annual returns for stocks, bonds, and Treasury bills. These estimates reflect the view that large deviations from historically normal valuations tend to “decay” or diminish over time, though this normalization may be interrupted or accelerated by factors such as economic events and periods of investor risk-aversion or speculation. The value-focused asset allocation of the Fund is based on these expected trajectories and reflects the extent to which stocks, bonds, or Treasury bills are estimated to have the highest expected return, adjusted for risk, at varying investment horizons.

In evaluating the inclination of investors toward risk-aversion or speculation, the investment manager examines the joint behavior of thousands of individual stocks, sectors, industries and security types, including debt securities of varying creditworthiness. Divergence or broad weakness in these measures is generally viewed by the investment manager as an indication of risk-aversion among investors. In contrast, uniformly broad or indiscriminate advances in these measures are generally viewed by the investment manager as an indication of speculation among investors. In its evaluation of prevailing market conditions, the investment manager also evaluates economic factors, investor sentiment, interest rates, credit-sensitive indicators, and other factors in an attempt to classify prevailing market conditions with historical instances having similar characteristics.

The Fund expects to maintain unhedged exposure to both the equity market and the bond market of at least 5% of net assets at all times, even when valuations and/or market conditions are viewed as unfavorable by the investment manager. The Fund’s exposure to either the stock market or the bond market may be increased to as much as 95% of net assets in conditions that have historically been strongly favorable for stocks or bonds.

Security selection

The portion of the Fund’s assets allocated to stocks will be invested primarily in individual common stocks favored by the investment manager. Individual stocks purchased by the Fund are chosen from the universe of all stocks traded on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ Stock Market.

In general, the stock selection approach of the investment manager focuses on securities demonstrating favorable valuations, and/or market action. The primary consideration used by the investment manager in assessing a stock’s valuation is the relationship between its current market price and the present value of estimated expected future cash flows per share. Other valuation measures such as the current dividend yield, and ratios of the stock price to earnings and stock price to revenue are also considered in relation to expected future growth of cash flows, in an attempt to measure underlying value and the potential for long-term returns.

Additional considerations include measures of financial stability such as variations in profit margins and balance sheet indicators. The analysis of market action includes measurements of price behavior and trading volume. The investment manager believes that strength in these measures is often a reflection of improving business prospects and the potential for earnings surprises above consensus estimates, which can result in increases in stock prices.

The portion of the Fund’s assets allocated to bonds will be invested primarily in U.S. Treasury securities with maturities in excess of one year, and no greater than 30 years. The Fund may also purchase corporate debt of U.S. issuers rated A- or higher by Standard & Poor’s Global Ratings or A3 or higher by Moody’s Investors Service, Inc., or having an equivalent rating from another independent rating organization.

The Fund expects to maintain unhedged exposure to both the equity market and the bond market of at least 5% of net assets at all times, even when valuations and/or market conditions are viewed as unfavorable by the investment manager. The Fund’s exposure to either the stock market or the bond market may be increased to as much as 95% of net assets in conditions that have historically been strongly favorable for stocks or bonds.

Variable exposure to general market fluctuations

The Fund may “hedge” a portion of its investment exposure to the stock market and the bond market by establishing offsetting investment positions intended to reduce the impact of general market fluctuations on the value of the Fund’s investment portfolio. However, the Fund does not intend to fully hedge its investment exposures and will seek at all times to maintain a minimum investment exposure (i.e., the amount of investment exposure that is not hedged) of at least 5% of its net assets to each of the stock market and the bond market. During conditions that have historically been strongly favorable for stocks or bonds, the Fund’s investment exposure to either the stock market or the bond market may represent as much as 95% of the Fund’s net assets.

Specific strategies for reducing or “hedging” stock market exposure may include purchasing put options on stock indices, writing covered call options on stocks which the Fund owns or call options on stock indices, or establishing short futures positions or option combinations (such as simultaneously writing call options and purchasing put options) on one or more stock indices considered by the investment manager to be correlated with the Fund’s stock portfolio. The notional value of these hedges is not expected to exceed 95% of the value of the Fund’s investment exposure to stocks.

Increases in the Fund’s exposure to general bond market fluctuations may be effected by purchasing individual bonds, exchange traded funds (“ETFs”), or Treasury bond futures. The Fund may seek to reduce or “hedge” its portfolio of bonds by effecting short sales of Treasury bond futures. The notional value of these hedges is not expected to exceed 95% of the Fund’s investment exposure to bonds.

Minimum investment

Regular accounts: $1,000
IRA and Gift to Minors accounts: $500