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Hedged Equity Q3 2022 Commentary

The Easterly Hedged Equity Fund (JDIEX) generated a -1.52% return vs. the S&P 500’s -5.30% decline in Q3. The prevailing narrative of the quarter was the confrontation between equity investors pressing the bullish expectations of a FED dovish pivot and the FED squashing those hopes to restrain inflationary expectations. Chair Powell at the Jackson Hole conference made it clear “there is no pivot”. As a result, volatility, which had been trending lower through mid-August (from VIX 29 to ~20) popped to the 32 range as the quarter ended.

The current elevated status of volatility has been a powerful factor for JDIEX as we trade frequently enough to adjust to conditions, and it allows the Fund to earn premium from call sales further out of the money. This enables the Fund to efficiently pay for our protection, but also provides greater upside participation as the market recovers. Coming into the 3rd quarter, the calls were positioned 5.26% out of the money with a weighted average day to expiration of 13.93 days. Due to elevated volatility levels, the call position going into the 4th quarter is now 9.55% out of the money, with a weighted average day to expiration of 29 days. This allows the Fund to participate more if the market rallies into year end. The premium collected has increased 123% from 21 bps to 47 bps. The put position remains similar, going into the 4th quarter as it was in the 3rd quarter. The current elevated status of volatility has been a powerful factor for the Fund, as we trade frequently enough to adjust to conditions, and because elevated VIX levels allow us to earn premium from call sales further out of the money. That allows the Fund to efficiently pay for our protection but also provides greater upside participation as the market recovers. YTD, the fund is down -7.79% vs. -24.77% in the S&P 500 TR. This year’s performance translates into significant risk adjusted return improvement over the market and our competitors.

Our portfolio managers have over a decade of experience advising investors on how to hedge a variety of risks in the market, as well as trading on the buyside for over 20 years. We appreciate you investing with us and look forward to continuing to deliver portfolio diversification.

9/30/2022QTDYTD1-Year3-Year5-YearSince Inception
I Share -0.0152-0.0779-0.03740.03740.05070.0422
Morningstar Options Trading Category-0.0299-0.14-0.10460.02030.02320.0213
S&P 500 TR -0.0488-0.2387-0.15470.08160.09240.0978

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.

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 March 19, 2023 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 1.92%, 2.12%, 2.76% and 1.92% respectively; total annual operating expenses after the expense reduction/reimbursement are 1.38%, 1.63%, 2.38% and 1.12% 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 March 19, 2023 for I, A, C and R6 Shares, to ensure that net annual operating expenses of the fund will not exceed 1.25%, 1.50%, 2.25% and 0.99%, respectively, subject to possible recoupment from the Fund in future years.

About EAB Investment Group, LLC

EAB Investment Group, LLC specializes in risk mitigation strategies and works with hedge funds, family offices, high-net-worth individuals, investment companies and other advisors. EAB Investment Group uses equity and index option strategies based on a proprietary process with the goal to reduce portfolio risk and increase the probability of success. A deep understanding of options pricing enables EAB Investment Group to manage carry and attempt to mitigate costs over time, and potentially optimize monetization.


VIX: The Cboe Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 index (SPX). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility.

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

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. Mutual funds involve risk, including possible loss of principal. The Easterly Funds are distributed by Ultimus Fund Distributors, LLC. Easterly Funds, LLC and EAB Investment Group, LLC are not affiliated with Ultimus Fund Distributors, LLC, member FINRA/SIPC. Certain associates of Easterly Funds, LLC are registered with FDX Capital LLC, member FINRA/SIPC.

Risks & Disclosures

The Fund will borrow money for investment purposes. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk while increasing investment opportunity. Derivatives may be volatile, and some derivatives have the potential for loss that is greater than the Fund’s initial investment. If the Fund sells a put option, there is risk that the Fund may be required to buy the underlying investment at a disadvantageous price. If the Fund purchases a put option or call option, there is risk that the price of the underlying investment will move in a direction that causes the option to expire worthless. The Fund’s ability to achieve its investment objective may be affected by the risk’s attendant to any investment in equity securities.

Shares of ETFs have many of the same risks as direct investments in common stocks or bonds. In addition, their market value is expected to rise and fall as the value of the underlying index or bonds rise and fall. It is possible that the hedging strategy could result in losses and/or expenses that are greater than if the Fund did not include the hedging strategy. The use of leverage by the Fund or an Underlying Fund, such as borrowing money to purchase securities or the use of derivatives, will indirectly cause the Fund to incur additional expenses and magnify the Fund’s gains or losses. Because a large percentage of the Fund’s assets may be invested in a limited number of issuers, a change in the value of one or a few issuers’ securities will affect the value of the Fund more than would occur in a diversified fund.


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