On April 13, 1970, astronaut John Swigert radioed his famous quote, “Okay, Houston, we’ve had a problem here,” following an oxygen tank explosion aboard Apollo 13. Unexpected challenges are part of both space exploration and investing.

Markets can experience periods of turbulence, causing them to return to Earth much like a space capsule. Market pullbacks are a normal part of investing, occurring on average 1.6 times per year since 1990, as shown below. In fact, over the past 30 years, there was only one year without at least one drawdown of 5% or more.

During these drawdowns, investors often faced a difficult choice: remain fully invested and accept full downside of the market or raise cash and risk missing the recovery. We believe that hedged equity funds could provide a third path, enabling investors to stay invested while seeking to reduce downside participation.

Performance During Market Pullbacks of 5%+

Hedged equity funds seek to participate in a meaningful portion of potential market upside while targeting lower downside participation during periods of market stress. These funds combine the potential appreciation of a diversified stock portfolio with an options overlay intended to help cushion the impact of market sell-offs.

This raises an important question: how do hedge equity funds perform during market sell-offs relative to a traditional long-only equity portfolio?

The following chart illustrates how the Connors Hedged Equity Fund (CVRDX) performed relative to the S&P 500 during each market pullback of 5% or greater since inception in January 2022. Across eleven such pullbacks, CVRDX experienced approximately 63% of the market’s downside on average.

This 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 may be lower or higher than the performance data quoted. For performance current to the most recent month end, please call 833-601-2676. CVRDX has a gross expense ratio of 1.52% and a net expense ratio of 1.10%, which is contractually agreed upon until March 31, 2027. Standardized performance as of March 31, 2026: 1 Year 10.52%, and since inception 8.11%. Inception date is January 19, 2022.

Impact of Staying Invested

If annual market pullbacks are frequent and, at times, significant, as illustrated in the previous charts, why not simply move to cash and attempt to time the market? The challenge is that market timing is notoriously difficult, and a meaningful portion of long-term returns comes from a relatively small number of trading days.

The following chart compares the past thirty years of returns for investors who remained invested in the S&P 500 versus those who missed the top ten, twenty, thirty, forty, and fifty days. Missing just the top ten days over the past three decades reduced annualized returns from 10.3% to 7.4% - a decline of over 28%.

Summary

Albert Einstein once said, “We cannot solve our problems with the same thinking we used when we created them.” Problems are inevitable, whether in space exploration or investing. One key to investing is the ability to stay invested during periods of uncertainty.

Planning for inevitable market pullbacks in advance can help support a more disciplined investment approach. For investors who want to maintain equity exposure while seeking a smoother investment experience along the way, an allocation to hedged equity strategies may be worth consideration.

Definitions

- Market pullbacks: a short-term decline in the stock market of more than 5% but less than 10% from a recent peak

Investors should carefully consider the investment objectives, risks, charges, and expenses of the fund before investing. The prospectus contains this and other information about the fund, and it should be read carefully before investing. Investors may obtain a copy of the prospectus by calling 833-601-2676 or at www.connorsinvestor.com/mutual-funds. The Connors Hedged Equity Fund is distributed by Ultimus Fund Distributors, LLC, Member FINRA/SIPC. Ultimus Fund Distributors, LLC and Connors Investor Services are separate and unaffiliated.

IMPORTANT RISK INFORMATION:

As with any mutual fund investment, there is a risk that you could lose money by investing in the Fund. The success of the Fund's investment strategy depends largely upon the Adviser's skill in selecting securities for purchase and sale by the Fund, and there is no assurance that the Fund will achieve its investment objective. 

Investments in options involve risks different from, or possibly greater than, the risks associated with investing directly in the underlying securities. Diversification does not ensure a profit or guarantee against loss. The S&P 500® Index is a capitalization-weighted unmanaged index of 500 widely traded stocks created by Standard & Poor’s. The index is considered to represent the stock market's performance in general. Indexes do not incur fees, and it is not possible to invest directly in an index.

Please be advised that we cannot assure that any email or reply you send to us will be sent securely or any secure email from us that is forwarded to others will be sent securely. For your protection, each time you wish to email us any confidential information, please call ahead to request secure access for that email only. We will then send you an email to establish a channel through which you can securely send us your information.

This commentary is not intended for the giving of investment recommendations to any single investor or group of investors, and no investor should rely upon or make any investment decisions based solely on its contents. All returns are shown net of fees. The indices shown are for informational purposes only and are not reflective of any investment. As it is not possible to invest in an index, the information shown does not reflect the features of an actual investment, such as objective, cost, and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, or tax features. The Strategy involves risk, including the possible loss of principal. There is no assurance that the Strategy will achieve its investment objectives. The use of leverage embedded in written options will limit the Strategy's gains because the Strategy may lose more than the option premium received. Selling covered call options will limit the Strategy's gain, if any, on its underlying securities, and the Strategy continues to bear the risk of a decline in the value of its underlying stocks.