Commentary - September 2025Long Short Fund
In the following commentary, the Portfolio Managers discuss the low-quality market rally as well as the Fund’s net equity exposure and its underweight to the Magnificent Seven stocks.
With a long/short investment perspective, what was notable about the market in the third quarter?
Over the last six weeks of the quarter, we saw a rally in many unprofitable, low-quality stocks, primarily due to investor enthusiasm around artificial intelligence, a reaction to the Federal Reserve’s lowering of interest rates, and less concern over the tariff situation.
Market strength has broadened beyond technology stocks, with artificial intelligence (AI) demand now driving gains in companies in the Industrials, Energy and Utilities sectors that support data centers. While companies are currently seeing tremendous demand, there’s concern that orders could slow at some point, leading to a correction in AI-related stocks.
How did the low-quality rally affect the Fund?
In the quarter, investor enthusiasm toward many stocks occurred regardless of the companies’ underlying fundamentals. We saw this low-quality rally negatively affect a few of our holdings that we shorted. For example, we shorted stocks that are not projected to have earnings for five to 10 years, yet investors were attracted to these companies because of their association with quantum computing and artificial intelligence. We believe this reaction is short-lived and investors will likely return to higher-quality companies such as the ones owned in the Fund’s long portfolio.
However, we are pleased that in such a strong market led by companies with inferior qualities, the Fund continued to outperform its Russell 1000 benchmark over the year-to-date period and provided lower risk than its Morningstar category over the past year ended September 30, 2025.
Fund Performance (as of 9/30/25) |
||||||
|---|---|---|---|---|---|---|
| AVERAGE ANNUAL RETURNS | STANDARD DEVIATION | |||||
| Class | YTD | 1 Yr | 5 Yr | 10 Yr | 1 Yr | |
| Institutional Class | 15.16 | 15.07 | 8.26 | 6.47 | 10.89 | |
| Russell 1000 Index | 14.60 | 17.75 | 15.99 | 15.04 | 13.20 | |
| Morningstar Long-Short Equity Category | 8.20 | 9.21 | 10.62 | 7.79 | 11.03 | |
Expense Ratios (gross/net): Institutional 2.09%/1.91%.
The performance data shown represents past performance. Past performance is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. For performance information through the most recent month end please call 855.625.7333.
Cromwell Investment Advisors has agreed to waive its management fees and/or reimburse Fund expenses through at least 4/30/26. Performance would have been lower without fee waivers/limits/reimbursements in effect. Please refer to the prospectus for detailed information.
Would you please provide insight into the Fund’s portfolio allocation in terms of net equity exposure?
The Fund’s net equity exposure as of the end of the quarter was 85%, which is similar to where it has been over the past year. The team focuses on making incremental moves in individual stocks rather than making large macro bets, keeping a balanced long and short book while staying invested. We would only meaningfully adjust positioning—such as reducing our longs or raising shorts—if there were clear concerning signals. Therefore, we won’t make tactical guesses without strong conviction.
What is the Fund’s exposure to the Magnificent Seven stocks as of the beginning of the fourth quarter?
Overall, the Fund has about a 200 basis point underweight to the Magnificent Seven stocks that include Apple, Microsoft, Alphabet (Google), Amazon, NVIDIA, Meta Platforms, and Tesla. Notably, the Fund does not own Tesla; while the company makes high-quality products, much of its valuation rests on investors’ high expectations around its potential in robots in autonomous cars.
Importantly, while the Mag 7 companies have been large contributors to the overall market’s earnings growth in recent quarters, going forward, the market expects growth to broaden to other companies. We seek to position the Fund in areas we believe offer superior growth potential that still trade at attractive valuations.
