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2024 Outlook: Hedged Equity

2023 Wrap Up

2023 looked like a typical bull market recovery, with the index up approximately 24% and volatility down about -40%.

Market breadth was exceptionally poor and, uncharacteristically, it was the Fed that fought the market’s exuberance. In essence, the Fed feeds more fear around a bad inflation decision and the market is behaving more on greed.

Given market exuberance, the over 56% equity upside participation rate of the Easterly Hedged Equity Fund (“JDIEX”) (YTD performance of 14.58% for JDIEX vs 26.29% for S&P 500 TR as of 12/31/23) has been very attractive. But the pathway of volatility in 2023 ranged from up 20% to down 40% several times through the year, rather than a gradual drop. This has supported both the monetization of, and the income collection from, the options overlay we utilize for the fund’s investment strategy.

The polarization of performance in the market in terms of style (value vs. growth and market cap) was somewhat echoed in EPS growth as well because of the disproportionate impact of elevated rates on small and cyclically sensitive firms. But most strategists and investors ignored these realities.

As the summer progressed, the market decided to stop waiting for the Fed’s all clear signal, as slightly softer job reports allowed bad news to be good news. However, the Fed pushed back, worrying that the market was loosening conditions too confidently which along with fiscal concerns led to an August and September swoon that spiked volatility and dropped the S&P 500 TR (“S&P”) ~7.3%. JDIEX was able to avoid 60% of that loss, benefiting from the increase in volatility, outperforming many of our hedged equity competitors.

In 2023, we saw few factors or datapoints that we believe created significant risk. That perspective does change, however, as we look to 2024 and the effects of an inverted yield curve on the various market sectors and asset classes, and on the economy as a whole.

Outlook for 2024

Will volatility and correlations revert to historical norms?

While not predictable or fully analyzable, geopolitical scenarios continue to present a global challenge that seems to be ignored in valuations.  We also find that the current geopolitical strife opens the market to more volatility.

We see the U.S. yield curve steepening as a combination of the Fed easing rate expectations, as evident in the Fed funds futures, and some slowing in U.S. economic activity which will gradually allow for the bond market to return some positivity to the yield curve.

From an asset allocation point of view, this is important because the correlation of bonds and stocks has been positive for many periods since the pandemic, and even a normalization of these correlations could create volatility and impact expected diversification. We highlight that the diversification JDIEX provides has little basis risk to the S&P as is found in fixed income and many other alternatives, as the instruments we use are all S&P derivatives or SPY related.

We are agnostic as to whether a recession occurs for the U.S. or not. Q1 typically has a softer history of growth, and we believe that will prove important, as some central banks (notably the European Central Bank (ECB)) could ease before the Fed. One possibility is that the bond markets may seek to front-run the Fed and steepen the yield curve in anticipation.

Obviously, if the U.S. does slow down into negative growth territory in Q1, the Fed Funds Futures expectations of a May ease may prove too late and equity volatility may spike due to fear. The bond market would likely drop front end rates prior to the Fed, and longer-term rates could also decline. With the caveat that increased U.S. treasury supply may somewhat limit the long end’s rally.

In this scenario, we would expect the S&P to drop, and for many credit sectors to suffer an adjustment as well. Defensive positioning would add relative value, and overall volatility would increase. The pro-recession arguments center on already poor U.S. manufacturing data, increasing unemployment and stretched U.S. consumers.

A normalizing yield curve in a non-recession scenario may sound good, but because of the unusually skewed level of performance and low volatility attributed to the mega cap stocks that have driven index performance, there is likely a higher level of volatility to be expected when greater breadth recovers in the S&P. This may seem counterintuitive, but the seeds of this can be seen in the much lower relative volatility of the S&P market cap weighted index, vs. the higher volatility in the equal weighted index.

We believe the forces (inverted yield curve and rising rates) that drove investors to Treasuries and mega cap tech, as lenders and the Fed restricted financing access to small and mid-cap firms, will start to revert. While the result of this could be beneficial, we think the transition may not be seamless and see the Fund’s systematic exposure to volatility as a beneficial offset for 2024.

Summary Points:

Not Your Typical Hedged Equity: Why Strategic Allocations Can Benefit from JDIEX

  • The Easterly Hedged Equity Fund (JDIEX) with demonstrated asymmetry (in beta management) under equity declines, seeks to provide notable and historical overall portfolio benefits. i.e. reduced drawdowns in the strategy accompanied by reduced beta in other portfolio exposures. Over time that can add diversification benefits*.
  • Because the strategy trades more often than “set it and forget it” or quarterly traded strategies, it systematically adjusts to a wider variety of regimes (around direction, volatility and dimension of moves). That translates into greater consistency of returns and less need to “trade” the strategy for client accounts.
  • The 40-60% participation range (vs. the S&P) against ~40% volatility (of S&P on 5-year data) has been very consistent over time and as such the Sharpe and Sortino ratios of the strategy have been steady.
  • Maintaining a high R-squared but having the capacity to drop beta to zero is why we believe JDIEX is a strategic position that tests well across different asset allocation approaches.
I Shares6.48%14.58%14.58%7.44%8.33%5.94%
Morningstar Options Trading Category6.85%17.57%17.57%5.36%7.12%4.36%
S&P 500 TR11.69%26.29%26.29%10.01%15.69%12.28%

Performance data quoted above is historical. Past performance does not guarantee future results and current performance may be lower or higher than the performance  data quoted. The investment return and principal value of an investment will fluctuate, so that shares when redeemed may be worth more or less than their original cost.  Investors cannot directly invest in an index, and unmanaged index returns do not reflect any fees, expense, or sales charges. For performance information current to the  most recent month-end, please call 888-814-8180 or visit

Source: Morningstar Direct.

Total return for all periods less than one year is an aggregate number (not annualized) and is based on the change in net asset value plus the reinvestment of all income  dividends and capital gains distributions.

The Fund’s management has contractually waived a portion of its management fees until December 31, 2024 for I, A, C and R6 Shares. The performance shown reflects the waivers without which the performance would have been lower. Total annual operating expenses before the expense reduction/reimbursement are 1.78%, 2.03%, 2.78%, and 1.78% respectively; total annual operating expenses after the expense reduction/reimbursement are 1.44%, 1.69%, 2.44% and 1.18% respectively. 5.75% is the maximum sales charge on purchases of A shares.

The Fund’s investment adviser has contractually agreed to reduce and/or absorb expenses until at least December 31, 2024 for I, A, C and R6 Shares, to ensure that net annual operating expenses of the Fund (excluding front-end and contingent deferred sales loads, leverage, interest and tax expenses, dividends and interest on short positions, brokerage commissions, expenses incurred in connection with any merger, reorganization or liquidation, extraordinary or non-routine expenses and the indirect costs of investing in other investment companies) will not exceed 1.25%, 1.50%, 2.25% and 0.99% respectively, subject to possible recoupment from the Fund in future years. For more information, please refer to the Fund’s summary prospectus and prospectus.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other information is contained in the Fund’s prospectus,  which can be obtained by calling 888-814-8180 and should be read carefully before investing. Additional Fund literature may be obtained by visiting

Risks & Disclosures


Mutual funds involve risk, including possible loss of principal. Options involve risk and are not suitable for all investors. Writing a covered call option allows the Fund to receive a premium (income) for giving the right to a third party to purchase shares that the Fund owns in a given company at a set price for a certain period of time. There is no guarantee of success for any options strategy. Increased portfolio turnover may result in higher brokerage commissions, dealer mark- ups and other transaction costs and may result in taxable capital gains. Investments in lesser-known, small and medium capitalization companies may be more vulnerable to these and other risks than larger, more established organizations.

Structured investments are formed by combining two or more financial instruments, including one or more derivatives. Structured investments may carry a high degree of risk and may not be suitable for many members of the public, as the risks associated with the financial instruments may be interconnected. As such, the extent of loss due to market movements can be substantial. Prior to engaging in structured investment transactions, you should understand the inherent risks involved. In particular, the various risks associated with each financial instrument should be evaluated separately as well as taking the structured investment as a whole. Each structured investment has its own risk profile and given the unlimited number of possible combinations, it is not possible to detail in this Risk Disclosure Statement all the risks which may arise in any particular case.


Past performance is not a guarantee nor a reliable indicator of future results. As with any investment, there are risks. There is no assurance that any portfolio will achieve its investment objective. Effective 10/2/2023, the Easterly mutual funds are distributed by Easterly Securities, LLC. Easterly Investment Partners, LLC and EAB Investment Group LLC, LLC are affiliates of Easterly Securities, LLC, member FINRA/SIPC. Orange Investment Advisors, LLC and Ranger Global Advisers are not affiliated with Easterly Securities, LLC. Certain associates of Easterly Securities, LLC are registered with FDX Capital LLC, member FINRA/SIPC.

Easterly Funds LLC serves as the investment adviser to the Easterly Fund family of mutual funds and related portfolios. Easterly Funds LLC is an SEC registered investment adviser; see Easterly Funds’ Form ADV at Registration does not imply and should not be interpreted to imply any particular level of skill or expertise.

There is no assurance that the portfolio will achieve its investment objective. A CLO is a trust typically collateralized by a pool of loans. A CBO is a trust which is often backed by a diversified pool of high risk, below investment grade fixed income securities. A CDO is a trust backed by other types of assets representing obligations of various parties. For CLOs, CBOs and other CDOs, the cash flows from the trust are split into two or more portions, called tranches. MBS and ABS have different risk characteristics than traditional debt securities. Although certain principals of the Sub-Adviser have managed U.S. registered mutual funds, the Sub-Adviser has not previously managed a U.S. registered mutual fund and has only recently registered as an investment adviser with the SEC.


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