Principal Investment Strategy
The Fund will seek investment results that correspond (before fees and expenses) generally to the performance of the Dhandho Junoon Index (the "Underlying Index"). The Underlying Index utilizes a proprietary, rules-based methodology developed by Indxx LLC (the "Index Provider") to select approximately 40 U.S. equity securities and American depositary receipts ("ADRs") listed on the New York Stock Exchange ("NYSE"), NYSE Arca, Inc. ("NYSE Arca") and the NASDAQ Stock Market from three categories of issuers — "Cannibals," "Spin-Offs" and "Select Value Manager Holdings." The methodology and criteria used to select the components of the Underlying Index are described in more detail below.
For illustrative purposes only.
One of the primary buckets is "Cannibals." These are companies that are aggressively buying back their own stock. The Index will give weight to companies consistently reducing their shares. These are businesses that are buying back their stock year in and year out. These consistent share count reducers tend to be cash heavy businesses.
To qualify for the Cannibals category, issuers must have repurchased between 1% to 26% of their shares outstanding during the trailing 12-month period measured one quarter preceding the Underlying Index’s rebalancing date and have a market capitalization of at least $1 billion. The securities from this universe are then ranked from highest to lowest based on the percentage of shares repurchased and the 15 issuers with the highest such percentages are selected for inclusion in the Underlying Index.
The other primary bucket is the Spin-offs bucket. These are companies that were spun off over the past several years from a parent. Spin-Offs may offer attractive value investing opportunities.
To qualify for the Spin-Offs category, issuers must have been spun-off from their parent companies in the past 12-84 months, and have a market capitalization of at least $100 million. The securities from this universe are then ranked based on how recently the spin-off occurred and the 15 issuers with the most recent spin-off dates are selected for inclusion in the Underlying Index.
Select Value Manager Holdings
The smallest bucket is the "Select Value Manager Holdings" bucket. A portion of the Dhandho Junoon Index consists of the largest positions in the portfolios of some hedge fund managers. To qualify for the Select Value Manager Holdings category, issuers must have been held by one of 20 selected value hedge funds during the previous quarter, as reported on their Form 13F filings.
As of April 12, 2017, the 20 value managers whose top holdings are included in the Index are:
- TCI Fund
- ValueAct Capital
- Pabrai Investment Funds
- Arlington Value Capital
- Scion Asset
- Cedar Rock
- Berkshire Hathaway
- Greenlight Capital
- Sequoia Fund
- Pershing Square Holdings
- H Partners
- Appaloosa Management
- Markel Insurance
- Oakmark Funds
- Tweedy, Browne Company
- Value Partners
- Blue Ridge Capital
- FPA Capital Fund
- Acatis Investment
The Select Value Manager Holdings category provides access to holdings of select value hedge funds without the "2 and 20" fees. 2 and 20 fees is a typical fee of most hedge fund managers in which the management fee is 2% of total assets under management plus an additional 20% of any profits.
The issuers must have a market capitalization of at least $1 billion. The securities from the universe of select value manager holdings are then grouped by hedge fund and ranked within each group from largest position to smallest position held by each hedge fund. The 10 issuers with the largest position in the hedge funds are selected for inclusion in the Underlying Index, subject to a predetermined limit per hedge fund. During reconstitutions, the hedge funds will be selected by an independent investment committee based upon the committee’s selection criteria including, that the hedge fund must have (i) at least five years of Form 13-F filings, (ii) assets under management of at least $500 million, and (iii) an increase in assets under management at least equal to the Consumer Price Index in the last 12 months.
Initially, the Underlying Index will allocate its exposure 40% to the Cannibal Category, 40% to the Spin-off category and 20% to the Select Value Manager Holdings category. At each rebalance, proceeds from any corporate actions and sales of securities, are allocated equally among all constituents in that particular bucket. The dividends are invested in the entire portfolio proportionately on the ex-date.