Q: Why did you launch this fund, and can you explain the investment strategy briefly?
A: Two years ago, we set out to build an income strategy while packaging the product in an easy to understand vehicle. A3 Financial was formed by a team of experienced investment professionals who recognized that many investors were struggling to find quality yield. Often, they were either accepting very low returns or stretching for return and taking on significant risks. We launched our credit fund AAACX with an objective of building a non-correlated, income focused institutional product. When we founded A3, we wanted to create a product that answered the question for institutions of how to find quality yield and preservation of capital without undue risk. The strategy invests in carefully researched, high income, alternative credit investments, which are generally non-traditional, small market cap, collateralized, structured credit instruments.
Q: How are advisors using your Fund in client portfolios?
A: With the equity markets being so volatile and risk-free rates near zero, advisors are clearly reworking portfolio allocations and are almost desperate to find income. With our attractive risk and income profile, advisors are looking to AAACX to be a part of their client’s income allocation. In addition, many investors are using our fund to help supplement their take home income needs.
Q: What are the benefits of the interval fund structure?
A: We think investors want more transparency and access to their investments. For this reason, we choose to package our income strategy in an Interval Fund which is a type of ‘40 act mutual fund. This structure offers many investor benefits such as daily pricing, limited quarterly repurchase offers, and is continuously offered for purchase at NAV without lengthy subscription documents and investor accreditations. Best of all, AAACX has 1099 tax reporting, removing the hassle of K-1s for your clients. To date, we have been offering quarterly repurchase tenders of 10% of the fund assets, which allows for us to hold our blend of niche public and less liquid private instruments.
Q: How has performance been on an absolute and relative basis, and especially given the current economic and market environment?
A: The A3 Alternative Credit Fund (AAACX) had a net return of 1.05% in March and returned 4.42% net for the quarter1, outperforming the Bloomberg Barclays Global Aggregate Bond Index2 which was down (0.33%) over the same 3-month period. The Fund had a 30-Day SEC yield of 9.10% subsidized3 and 3.39% unsubsidized4. Since inception (10/1/19), the fund has a total net return of 8.10%1. We continue to operate without any leverage.
To learn more, register for A3’s recent webcast: Yes. Positive returns DO exist in fixed income today. Discover how AAACX has thrived in these tumultuous times.
Topics that will be covered:
- Key principles for capital preservation in credit
- Investment strategies during a cash flow shock
- Avoiding false yield
1 Inception date is October 1, 2019. Returns are net total returns. Results are unaudited.
2 “BBG G. Agg ” refer to the Bloomberg Barclays Global Aggregate Index, which is a broad-based flagship benchmark that measures the investment grade, global multi-currency, fixed-rate taxable bond market.
3 “30-Day SEC Yield (subsidized)” is an annualization of the Fund’s total net investment income per share for the 30 day period ended on the last day of the month and reflects any net fees waivers and reimbursements in effect during the yield calculations period.
4 “30-Day SEC Yield (unsubsidized)” reflects the 30-day yield if the investment adviser were not reimbursing the fund for part of its expenses or waiving all or part of its fee.
5 Represents asset class exposure determined by A3 Financial Investments as of March 31, 2020. Refer to the Prospectus for a discussion of risks and a description of key asset classes.
6 Current Distribution Rate is expressed as a percentage equal to the projected annualized distribution amount (which is calculated by annualizing the current cash distribution per share without compounding), divided by the current net asset value and may be inclusive of return of capital.
The returns quoted present past performance. The performance shown is net of all fees (including a monthly advisory fee of 1.50% per annum) and expenses and reflects the reinvestment of dividends and investment income. Depending on an investor’s investment date, holding period and other factors, an investor may have an overall performance that underperforms or outperforms the data shown.
Inception date for AAACX is 10/01/2019. Returns greater than one year are annualized. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that shared, when redeemed, may be worth more of less than their original cost.
Management fee: 1.50%
*Net Expense Ratio/ **Gross Expense Ratio: 3.30%/3.40% ***Expense limitation: 1.95%
*The Net expense ratio reflects the reduction of expenses from fee waivers and reimbursements. Elimination of these reductions will result in higher expenses and lower performance. These reductions are contractual and will continue until at least 9/12/2020.
**The Gross Expense Ratio reflects additional expenses embedded in the Fund’s performance, such as the indirect costs of investing in other investment companies.
***The Adviser has entered into an expenses limitation agreement to pay the ordinary operating expenses of the Fund that exceed 1.95% per annum.
The AAACX prospectus is available here.
The A3 Alternative Credit Fund is a continuously-offered, non-diversified, registered closed-end fund with limited liquidity. Distributor – Foreside Fund Partners LLC