EHLS: 2025 a Year

TO REMEMBER

The chart reflects market prices (MKT). The fund’s expense ratio is 2.62%, which includes estimated dividends and interest expense on short positions. If this were excluded, the expense ratio would be 1.15%. The fund's inception was 4/2/2024. The 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 sold or redeemed, may be worth more or less than their original cost, and current performance may be lower or higher than the performance quoted. For standardized performance, visit https://www.evenherd.com/ehls.

As we close out the fund's inaugural full calendar year in operation, EHLS delivered resilient performance amid one of the more volatile market environments in recent memory, with the S&P 500 observing its quickest decline followed by its fastest recovery to all-time highs. The year featured sharp sector rotations, dramatic policy-driven drawdowns, and extraordinary leadership in precious metals mining, all navigated through our proprietary relative momentum system with an emphasis on clustering to mitigate concentration risks.

The fund's top 10 holdings remained well-diversified at month-end, representing under 14% of the portfolio (compared to ~40% in the S&P 500), while net equity exposure averaged in the 60–70% range — a level that has allowed meaningful participation in upside while providing flexibility to rotate amid regime shifts.

IN THIS UPDATE

• Precious metals mining delivered one of the most dominant cluster performances in decades, with gold prices surging ~65% in 2025, the strongest run since the late 1970s high-inflation era, driving outsized gains in core holdings like Kinross Gold (KGC), Agnico Eagle (AEM), and select juniors.

• A significant momentum drawdown in late February, followed by the broad April "Liberation Day" tariff shock, tested the portfolio; enhanced clustering methodologies proved effective in dampening losses relative to benchmarks post-Liberation Day.

• Financials led much of the year but ceded ground in the second half; Materials and Utilities emerged as strong late-year leaders, while Consumer Staples and Real Estate remained deeply out of favor.

• Energy showed signs of stabilization and late-year momentum, supported by geopolitical developments and rising activity expectations.

• The "sea level" breadth indicator reached cycle lows in late 2025, historically signaling constructive conditions ahead absent sharp reversals.

LOOKING BACK

2025 was a year of extremes, marked by the fund's first full calendar period and significant challenges that ultimately reinforced the value of our disciplined, system-driven approach.

The year began with lingering AI enthusiasm, but early January ripples from the "Deep Seek" episode — the release of China's DeepSeek R1 model, which challenged perceptions of AI training costs and triggered sharp volatility in tech stocks including a notable Nvidia sell-off — were quickly overshadowed by a sharp momentum factor drawdown starting in mid-February. From February 18 to March 10, the portfolio experienced a nearly 18% decline, an outcome we actively work to avoid, yet one driven primarily by concentrated momentum exposure at the time. This event served as a critical stress test and accelerated the refinement of our clustering diversification methodologies, which have since become a cornerstone of risk management and discussed in depth throughout the year.

The most acute general market shock arrived in early April with "Liberation Day," the announcement of sweeping global tariffs on April 2, triggering a broad ~12% drop in the S&P 500 from April 2 to April 8. Thanks to the enhanced clustering framework implemented in the preceding weeks, EHLS navigated this period with a far more contained decline of less than 5%, demonstrating the effectiveness of spreading exposure across themes rather than allowing any single factor or sector to dominate excessively.

From the August lows (which incorporated the earlier momentum crash effects), the fund established a meaningful lead — approaching double-digit outperformance versus the S&P 500 Equal Weight Index and trailing the cap-weighted S&P 500 by less than 5% for the full year (with the broader index posting approximately 16% total return for 2025). Precious metals mining emerged as the standout theme, with the cluster widening its leadership margin to historic levels amid gold's remarkable rally. This provided substantial performance torque, particularly in the second half, even as broader markets contended with tariff uncertainty and sector rotations.

Financials held leadership through much of 2025 but began a gradual fade, while Materials and Utilities strengthened. Consumer Staples and Real Estate lagged persistently with minimal long exposure maintained.

LOOKING FORWARD

Entering the new year, our system reflects continued constructive breadth, with the "sea level" indicator at cycle lows — a condition that has historically preceded periods of positive equity momentum rather than imminent systemic risks. We anticipate maintaining net equity exposure in the 60–65% range through the early months of 2026, allowing participation in upside while preserving agility. The indicator has stablized, which allows us to say with some confidence that we shouldn't be adding trememendous amounts of net long exposure at this state.

Clustering continues to enable targeted leans into high-conviction themes without excessive concentration. Precious metals mining remains exceptionally dominant, a run reminiscent of the 1970s inflation era, and we expect to sustain meaningful exposure here for the foreseeable future, with disciplined individual caps (likely trimming or redeeming any single name that breaches ~2%) to manage correlated volatility. We believe names like Kinross Gold (KGC) and other high-ranking producers/juniors should remain core contributors.

Financials enter 2026 with a decent but neutral-to-underweight posture after leading much of 2025; we will monitor closely for any stabilization. Materials and Utilities now rank among the top sectors, and we believe are positioned to benefit from ongoing strength in infrastructure and power-related demand. Energy — a relative underperformer through much of 2025 — has shown accelerating momentum in recent months, bolstered by geopolitical developments that could increase activity levels. While we do not view these events as inherently positive for oil prices in isolation, but the US Administration has touted the opportunity for drilling activies; we expect Energy to potentially migrate into the top sector group if the trend persists.

On the laggard side, Consumer Staples continues its slide and ranks as the fund's most underweight sector heading into January, with Real Estate having stabilized somewhat in December but still trailing meaningfully. We anticipate minimal exposure to both for the months ahead, with cautious, low-conviction shorts only where momentum signals align — avoiding aggressive positioning in case of a rapid regime shift.

Overall, we remain optimistic on risk assets into 2026. The combination of extreme sector dispersion, structural tailwinds in AI/power infrastructure and domestic commodities, as well as a pick up in the collision between robotics and AI,and policy-driven themes provides a favorable backdrop for selective equity participation. As always, our proprietary momentum system (not discretionary views) will guide rotations, trims, and exits, ensuring diversification and ruthless adherence to relative strength.

The views, opinions and content presented are for informational purposes only. The charts and/or graphs contained herein are for educational purposes only and should not be used to predict security prices or market levels. The information presented in this piece is the opinion of Even Herd and does not reflect the view of any other person or entity.  The information provided is believed to be from reliable sources, but we cannot guarantee the accuracy or completeness of the information, no liability is accepted for any inaccuracies, and no assurances can be made with respect to the results obtained for their use.  The information contained herein may be subject to change at any time without notice. Past performance is not indicative of future results.