Cavalier Funds

CHIIX February Commentary

High Yield Sector Follows Bounce of Risk Assets

Following a minor correction and negative return in 2018, the corporate high-yield bond market has seen a strong start to 2019. December 2018 produced the worst monthly return (-2.1%) in three years. January 2019 produced the best monthly high yield return in more than seven years (+4.5%). As spreads widened in 2018, the high yield sector may offer attractive risk adjusted returns in 2019. The current yield to worst of the Bloomberg US Corporate High Yield Index is 6.89%. The yields can be aggregated by sector as follows: BB yield at 5.27%, B yield at 7.0%, and CCC yield at 11.2%. The current spread of the index over Treasuries is 440 bps and the average bond coupon in the index is 6.40%

Since 1996 there has not been two consecutive negative calendar year returns for the high yield sector. Historically the high yield market has less than 60% of the volatility of the broad equity markets. This lower volatility was demonstrated in December of 2018. The 2019 environment may offer investors in the high yield sector the opportunity for earning the average coupon of the index and additional total return from technical and fundamental factors.

The US high-yield market has suffered ten peak-to-trough losses greater than 5% in the last 20 years. The US high yield market has experienced three large double digit drawdowns all occurring during recessionary periods (see chart). 

The Cavalier Hedged High Income goal is to capture the benchmark performance in up markets and protect during market drawdowns. The Cavalier Hedged High Income seeks to protect over 50% of the portfolio from a large drawdown (> than 10%). The portfolio will unlikely hedge during smaller drawdowns as the recovery times are very short as exhibited in 2018-19.

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Investors should consider the investment objective, management fees, risks, charges and expenses of the Fund carefully before investing or sending money. The Prospectus and Summary Prospectus contains this and other information about the Fund. For a current Prospectus and/or Summary Prospectus, call 888-721-4588, visit us at www.cavalierfunds.com or email us at info@cavalierfunds.com. Please read the Prospectus and/or Summary Prospectus carefully before you invest. Current and future holdings are subject to change and risk.  

An investment in the Cavalier Hedge High Income Fund is subject to investment risks, including the possible loss of some or the entire principal amount invested.  There can be no assurance that the Cavalier Hedged High Income Fund will be successful in meeting its investment objective. Investment in the Cavalier Hedged High Income Fund is also subject to the following risks: Control of Portfolio Funds Risk, Corporate Debt Securities Risk, Cybersecurity Risk, ETFs Risk, Fixed Income Risk, Foreign Securities and Emerging Markets Risk, Fund of Funds Risk, High-Yield Risk, Inflation Risk, Interest Rate Risk, Investment Advisor Risk, Market Risk, MLPs Risk, Portfolio Turnover Risk, and REIT Risk. The Cavalier Hedged Income Fund may invest in foreign securities and emerging markets, and these investments have risks that differ significantly from those associated with domestic securities. The use of leverage may exaggerate changes in a portfolio fund’s share price and the return on its investments and accordingly, the value of the Cavalier Hedged High Income Fund’s investments in portfolio funds may be more volatile than all other risks, including the risk of loss of an investment, tend to be compounded or magnified. The Cavalier Hedged High Income Fund and Portfolio Funds may invest in junk bonds, including bonds of issuers in default, and other fixed income securities that are rated below investment grade. More information about these risks can be found in the Cavalier Hedged High Income Fund’s prospectus.

The Cavalier Funds are distributed by Capital Investment Group, Inc., Member FINRA/SIPC, 100 E Six Forks Rd, Suite 200, Raleigh, NC, 27609, (800) 773-3863. There is no affiliation between Cavalier Investments, the Investment Advisor to the Fund, including its principals, and Capital Investment Group, Inc.