EHLS: New Highs and Broadening Strength

Energy and Materials Anchor a Strong Month

The fund closed May at fresh all-time highs, delivering +15.82% (MKT) year-to-date against the S&P 500 at +10.73% and the S&P 500 Equal Weight at +8.74%. Equity markets staged one of their strongest two-month stretches in years, and we are pleased to have continued to outperform across the rally. Energy and Materials remain firmly in the top tier of the system with no sign of losing those positions, and the broadening of strength into select communications, real estate, and staples names is creating fresh opportunities even as some longer-running leaders consolidate.

Diversification across clusters, industries, and individual securities remains central to portfolio construction and is guided by our proprietary system. The fund's leadership across sectors continues to evolve in ways that the system identifies before headlines confirm them, and we continue to follow its signals.

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.

IN THIS UPDATE

• The fund extended its year-to-date gain to +15.82% (MKT), outpacing the S&P 500 at +10.73% and the S&P 500 Equal Weight at +8.74%.

• Energy and Materials continue to lead the system with no indication of losing their top positions in the near term.

• Utilities and Industrials remain strong; Financials sit in the top half but appear to be slowly sliding, as does Health Care.

• Consumer Discretionary has fallen further to the back and now sits in last place.

• Communication Services, Real Estate, and Consumer Staples are showing signs of improvement and may see further allocation if those trends continue.

• AI-linked semiconductors and aerospace/defense names delivered standout contributions, led by exceptional moves in Micron, Rocket Lab, and Guardant Health.

LOOKING BACK

Energy and Materials Retain Their Lead

Energy and Materials continue to anchor the top of the system. Both have held their positions through multiple market regimes this year, from the geopolitically driven repricing earlier in the spring to May's broad risk-on rally. We see no indication that either sector is at risk of losing its lead in the month ahead.

Within Energy, the portfolio remains positioned around midstream, offshore, and shipping. TechnipFMC (FTI) continues to be one of the fund's largest positions despite consolidating roughly -9.5% during the month after its strong run earlier in the year. Several of our midstream and royalty names continued to perform, including Permian Basin Royalty Trust (PBT) up roughly +25% in May. The system did exit Peabody Energy during the month as its ranking deteriorated, consistent with our discipline of trimming when relative strength fades regardless of how a sector overall is performing.

Materials strength continues to be carried by the broader mining cluster. Hudbay Minerals (HBM) added roughly +26% in May, extending its run as the system continues to support copper and base metals exposure. Within the precious metals cluster, we did execute a system-driven exit in Sibanye Stillwater (SBSW) during the month, but core precious metals exposure remains intact. The breadth of the mining cluster, across copper, uranium, and gold, has been one of the most durable themes in the portfolio.

A Sector Picture Becoming More Nuanced

While Energy and Materials lead, the broader sector landscape evolved meaningfully in May. Utilities and Industrials remain in healthy positions in the second tier. Industrials in particular has benefited from the AI infrastructure build-out and aerospace/defense exposure. Rocket Lab (RKLB), one of the fund's largest positions, was the standout contributor of the month, gaining roughly +74% as the company continued to capitalize on accelerating commercial space demand. Other industrials and infrastructure names including Sterling Infrastructure (STRL) at +67%, Mercury Systems (MRCY) at +42%, and Garrett Motion (GTX) at +28% also added meaningfully.

Financials and Health Care sit in the upper half of the system but appear to be slowly sliding. Financials remain a meaningful weight, with names like Cboe Global Markets (CBOE) continuing to perform, but the cluster overall has seen relative momentum cool. Health Care has shown a similar pattern, though notable individual strength persisted. Guardant Health (GH) added roughly +49% during the month, demonstrating that selectivity within Health Care remains rewarded even as the broader sector ranking moderates. We did execute system-driven exits in several Health Care names during May, including Alignment Healthcare, Tenet Healthcare, and Elanco Animal Health, as their respective rankings deteriorated.

Consumer Discretionary has fallen further to the back and now sits in last place in the system. The deterioration is showing up not just in muted long exposure but in our short book, where new short positions opened during May included several homebuilder and consumer cyclical names: Builders FirstSource (BLDR), Gibraltar Industries (ROCK), Dream Finders Homes (DFH), Pool Corp (POOL), and Whirlpool (WHR). The system has continued to identify deteriorating relative strength across the housing and consumer cyclical complex, and we expect short exposure here to remain meaningful as long as those rankings persist.

Signs of Improvement at the Back

On the more encouraging side, Communication Services, Real Estate, and Consumer Staples, which have sat near the back of the system for several months, are showing signs of improvement. None has moved into the top tier yet, but each has begun to climb in the rankings. We added new long positions in May that reflect this shift, including Nayax (NYAX) in payments/communications, Postal Realty Trust (PSTL) and Diversified Healthcare Trust (DHC) in real estate (with DHC gaining roughly +10%during the month), and National HealthCare Corp (NHC) in health care services. If the trends in these sectors continue to improve, we expect to see meaningful additional allocation in the coming months.

Semiconductors and the AI Trade

The AI-linked semiconductor and hardware cluster continued to drive significant contribution. Micron (MU) delivered an extraordinary +88% in May alone, briefly crossing the $1 trillion market cap threshold late in the month as HBM memory pricing and contracted demand fundamentally repriced the business. Seagate (STX) added +31%, AXT (AXTI) added +30%, and Vicor (VICR) added +24%, extending the trend that has been in place since April.

These remain the largest pocket of upside volatility in the long book. As we have noted in prior updates, this concentration is something we actively monitor, and the system has helped us manage exposure in this cluster despite the magnitude of the moves. AI's pace of development has only accelerated, and the physical constraints we have flagged previously, including power, water, manufacturing capacity, and memory supply, are increasingly being acknowledged by the broader market. We continue to participate while staying disciplined about position sizing.

LOOKING FORWARD

Sector Positioning

Looking into June, our base case is for the current sector hierarchy to largely hold:

• Energy and Materials continue to anchor the top of the system. No meaningful threat to their leadership is evident.

• Utilities and Industrials remain in healthy second-tier positions.

• Financials and Health Care sit in the upper half but are slowly losing ground; further deterioration could pull exposure lower.

• Communication Services, Real Estate, and Consumer Staples continue to show improving trends and could see further allocation if those trends persist.

• Consumer Discretionary remains in last place, with limited long opportunities and meaningful new short exposure.

The Broader Setup

The S&P 500 just closed its strongest two-month stretch in years, breaking through to new all-time highs on the back of resilient corporate earnings and durable AI-driven capital investment. The market's resilience in the face of ongoing geopolitical noise, tariff uncertainty, and persistent inflation concerns has been notable. We are not predicting whether this momentum will continue or whether a pause is coming. What we can say is that the system continues to identify clear winners and losers across sectors, and the broadening of strength into previously lagging areas like select real estate and communications names is healthy.

We remain mindful of how stretched the AI semiconductor cluster has become. Names like Micron have moved nearly tenfold in a year, and while the system continues to support exposure, position sizing discipline matters more in this environment, not less. Upside volatility, while welcome, makes for a more delicate dance than downside volatility, and we continue to look for ways to dampen concentration without dampening returns.

As always, the system, not our opinion, will dictate positioning. We continue to stay diversified, manage exposure thoughtfully, and let the strongest themes compound while cutting positions when rankings deteriorate.

The Even Herd Long Short ETF (EHLS) is a relative momentum-driven long/short equity strategy. For more information, visit evenherd.com/ehls.