Diversification does not ensure a profit or guarantee against a loss.

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This material contains speakers’ opinions. It should not be regarded as investment advice or a recommendation of specific securities.

Term Definitions:

Investor Risk Premium: The additional return an investor expects to earn from a riskier investment compared to a risk-free asset. It is calculated as the expected return on an asset minus the risk-free rate, reflecting compensation for taking on additional risk. This premium fluctuates based on market conditions, investor sentiment, and macroeconomic factors.

Trend Following: A trading strategy used in managed futures that seeks to capitalize on persistent price trends. It involves identifying and following upward or downward price movements using technical indicators like moving averages. Unlike mean-reversion strategies, which assume prices will revert to an average, trend-following assumes that strong market trends will continue.

Moving Average: A statistical calculation used to smooth out price data and identify trends over a specified period. There are two common types:

• Simple Moving Average (SMA): An average of closing prices over a set number of periods.
• Exponential Moving Average (EMA): Gives greater weight to recent prices, making it more responsive to new information.
• A 252-day moving average (approximately one trading year) is often used to analyze long-term trends in equities and futures markets.

Exogenous Price Risk: The risk that businesses face due to external factors influencing price movements, such as geopolitical events, weather conditions, or supply chain disruptions. This type of risk is especially relevant in commodities and futures markets.

Right Tail of Distribution: The extreme positive end of a probability distribution representing large, unexpected gains in an investment. In financial markets, right-tail events indicate rare but significant positive returns, often associated with trend-following strategies or volatile market conditions.

Short Position / Long Position:

• Long Position: Buying an asset with the expectation that its price will rise. The potential risk is limited to the initial investment, while the reward is theoretically unlimited.
• Short Position: Selling an asset (often borrowed) with the expectation that its price will fall. The potential risk is unlimited if the asset’s price rises significantly, while the reward is capped at the price at which it was sold.

Beta Move: A market movement closely correlated with broad market indices, often used in discussions about portfolio risk. A “beta move” suggests that an asset or portfolio is moving in line with overall market trends rather than exhibiting independent price action.

Yield Curve: A graphical representation of interest rates for bonds of different maturities. It provides insights into investor expectations for economic growth and inflation. A normal yield curve slopes upward (longer-term rates are higher than short-term rates), while an inverted yield curve can signal an economic downturn.

KFA MLM Index: A benchmark index that tracks the performance of managed futures strategies, particularly those employing trend-following techniques. It provides a standardized measure for evaluating the effectiveness of these investment strategies.

Global Financial Crisis (GFC): The severe worldwide financial crisis of 2007-2008, triggered by the collapse of the U.S. housing market and excessive risk-taking in financial institutions. It led to the failure of major banks, massive government bailouts, and lasting regulatory changes in global markets.