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Commentary iMGP DBi Hedge Strategy ETF First Quarter 2022 Commentary

During the quarter, the iMGP DBi Hedge Strategy ETF lost 1.32% at NAV and 1.33% at Market% versus the HFRX Equity Hedge Index benchmark loss of 0.29%%. Since inception the ETF gained 11.45% at NAV and 11.35% at Market versus the benchmark’s 7.26% gain.

Performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and 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. Current performance of the fund may be lower or higher than the performance quoted. Short term performance is not a good indication of the fund’s future performance and should not be the sole basis for investing in the fund. Performance data current to the most recent month end may be obtained by visiting www.imgpfunds.com.

Performance as of 9/20/2021 is that of the Predecessor Fund.  All of the Assets and Liabilities of the Predecessor Fund were transferred  to the Fund in a reorganization on 9/20/2021.

iMGP DBi Hedge Strategy ETF (DBEH) – Market Commentary 1Q2022

A market commentary in early April 2022 feels somewhat premature.  Three major macro regime shifts – inflation, monetary tightening and now Cold War 2.0 – emerged over the past year and kicked into high gear last quarter.  None were “priced in” and all appear to be in the early stages.  In this new world, market participants must try to simultaneously anticipate the actions of policy makers, market participants, producers and consumers – then all the second and third order effects.  The head of a global bank recently described the challenges as “unprecedented.” 

That said, we can describe what has happened so far this year.  The inflation debate is over – for now – and markets expect widespread monetary tightening.  The 2-Year Treasury yield began 2021 at 0.11%, rose to 0.73% at year end and now stands at 2.38%.  Across the board, bonds suffered drawdowns, with the Bloomberg US Aggregate returning -6.2%, yet corporate bonds are down more due to the painful combination of rising rates and widening credit spreads.  The Ukraine conflict exacerbated the current commodity supply shock and, as countries race to domesticate supply chains, was another nail in the coffin for globalization.  Equities suffered significant drawdowns, then staged an impressive recovery that cynics label a bear market rally.  Factor rotations and cross-asset correlations have been exceptionally volatile, as each new shift in the narrative is extrapolated out to the investment horizon.  Extreme volatility, widespread leverage and disappearing market liquidity have materially raised the odds of another Lehman moment.  Hedge funds appear to view the current situation as a great opportunity but also fraught with risk, as an unsubstantiated headline can suddenly and violently reverberate through markets.

The Fund entered 2022 with above average equity exposures, tilted towards the value centric small/mid cap and international developed markets.  Prior to the Russia-Ukraine conflict, EAFE was a popular hedge fund trade and was outperforming US markets; however, the invasion of Ukraine led to a sharp reversal.  With greater geopolitical uncertainty, net equity risk was reduced throughout the quarter, consistent with hedge fund positioning.  The Portfolio’s hedges in the US dollar (long) and Treasuries (short) helped to protect capital.  Since inception, DBEH has outperformed the illiquid, high-cost Target portfolio of hedge funds and has provided over 200 bps per annum of alpha with the client-friendly features of an ETF.

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DISCLOSURE

The funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188, or visiting partnerselect.com. Read it carefully before investing. 

Investing involves risk. Principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the funds. Brokerage commissions will reduce returns. The Fund is “non-diversified,” so it may invest a greater percentage of its assets in the securities of a single issuer. As a result, a decline in the value of an investment in a single issuer could cause the Fund’s overall value to decline to a greater degree than if the Fund held a more diversified portfolio.

The Fund should be considered highly leveraged and is suitable only for investors with high tolerance for investment risk. Futures contracts and forward contracts can be highly volatile, illiquid and difficult to value, and changes in the value of such instruments held directly or indirectly by the Fund may not correlate with the underlying instrument or reference assets, or the Fund’s other investments. Derivative instruments and futures contracts are subject to occasional rapid and substantial fluctuations. Taking a short position on a derivative instrument or security involves the risk of a theoretically unlimited increase in the value of the underlying instrument. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities. Exposure to foreign currencies subjects the Fund to the risk that those currencies will change in value relative to the U.S. Dollar. By investing in the Subsidiary, the Fund is indirectly exposed to the risks associated with the Subsidiary’s investments. Fixed income securities, or derivatives based on fixed income securities, are subject to credit risk and interest rate risk.

A commission may apply when buying or selling an ETF.

The HFRI Equity Hedge Index is comprised of managers typically maintaining at least 50%, and in some cases be substantially entirely invested in equities and equity derivatives, both long and short. Strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. The HFRI Emerging Markets Index is comprised of strategies according to their regional investment focus only. There is no investment strategy criteria for inclusion in these indices.

The target portfolio benchmark hedge fund group for DBEH is the 40 largest funds in the HFRX Equity Hedge Index.

Each Morningstar Category Average represents a universe of Funds with similar investment objectives.

Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. 

Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

basis point is a value equaling one one-hundredth of a percent (1/100 of 1%)

The S&P 500 Index consists of 500 stocks that represent a sample of the leading companies in leading industries. This index is widely regarded as the standard for measuring large-cap U.S. stock market performance. 

Index performance is not illustrative of fund performance.  An investment cannot be made directly in an index. 

iM Global Partner Fund Management, LLC  has ultimate responsibility for the performance of the iMGP Funds due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement. 

The iMGP Funds are Distributed by ALPS Distributors, Inc.