Metacapital

Fund Investment Objectives

Metacapital Rising Rates Strategy creates a negative duration, positive carry portfolio to hedge against rising rates. The fund targets bond-like returns in an unchanged rate scenario with large positive return potential in rising rate scenarios. The strategy combines negative duration, high yielding, high OAS mortgage derivatives with both long-dated put options on long (5-year and 10-year) rates and put options on Eurodollars. The fund: 'spends' some of the mortgage OAS to offset Theta cost of long option portfolio; has the potential to produce outsized returns in rising rate scenarios; exploits opportunities created by pricing inefficiencies and supply-demand technicals within the Agency Mortgage Derivative and Interest Rate Volatility markets; takes advantage of historically low volatility levels created by the Federal Reserve Bank's QE initiatives; portfolio carry more than offsets Theta cost of interest rate options and removes need to time eventual US economic recovery and rising rates; hedges long-only bond portfolio without the typical costs associated with hedging interest rates; portfolio has positive convexity and gets increasingly short duration as rates rise.