--- title: Q4 2019 Commentary - Active Patience description: General consensus indicates “clear skies ahead” for 2020. Nonetheless, the Leading Economic Indicators (“LEIs”) are decidedly mixed. image: https://blog.crossingbridgefunds.com/hubfs/q419%20feature%20image.png --- [![CrossingBridge Funds](https://blog.crossingbridgefunds.com/hubfs/CrossingBridge_January2019%20Theme/Images/download.png)](https://www.crossingbridgefunds.com/) - About - [About Us](https://www.crossingbridgefunds.com/about-us) - [Our Team](https://www.crossingbridgefunds.com/team) - [Approach](https://www.crossingbridgefunds.com/our-approach/) - Funds - [Ultra Short Duration Fund](https://www.crossingbridgefunds.com/ultra-short-duration-fund) - [Low Duration High Income Fund](https://www.crossingbridgefunds.com/low-duration-high-yield-fund) - [Responsible Credit Fund](https://www.crossingbridgefunds.com/responsible-credit-fund) - [RiverPark Strategic Income Fund](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund) - [Nordic High Income Bond Fund](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund) - [Insights](https://blog.crossingbridgefunds.com/blog) - [Contact](https://www.crossingbridgefunds.com/contact/) - About - [About Us](https://www.crossingbridgefunds.com/about-us) - [Our Team](https://www.crossingbridgefunds.com/team) - [Approach](https://www.crossingbridgefunds.com/our-approach/) - Funds - [Ultra Short Duration Fund](https://www.crossingbridgefunds.com/ultra-short-duration-fund) - [Low Duration High Income Fund](https://www.crossingbridgefunds.com/low-duration-high-yield-fund) - [Responsible Credit Fund](https://www.crossingbridgefunds.com/responsible-credit-fund) - [RiverPark Strategic Income Fund](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund) - [Nordic High Income Bond Fund](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund) - [Insights](https://blog.crossingbridgefunds.com/blog) - [Contact](https://www.crossingbridgefunds.com/contact/) # Q4 2019 Commentary - Active Patience February 03, 2020 General consensus indicates “clear skies ahead” for 2020.  Nonetheless, the Leading Economic Indicators (“LEIs”) are decidedly mixed. In this environment, we are certain that selective opportunities will arise as we pursue active patience. **Active Patience** *Not to be confused* *with passive waiting, active patience is deliberately allowing events to percolate until an opportunity may be exploited.* *![Image 1-4](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%201-4.png?width=929&name=Image%201-4.png)*   **Leading Economic Indicator and Recession Probability Index1** *![Image 2-3](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%202-3.png?width=889&name=Image%202-3.png)*   General consensus indicates “clear skies ahead” for 2020.  Nonetheless, the Leading Economic Indicators (“LEIs”) are decidedly mixed; the rise in the stock market and “full employment”2 reflect strong optimism while measures of industrial activity and credit conditions are neutral, and business and consumer sentiment are flirting with pessimism. From a historical perspective and in aggregate, the LEIs are signaling either a “v-shaped” rebound or a recession.  In this environment, we are certain that selective opportunities will arise as we pursue active patience. **Our focus in 2020, subject to change (portions below bolded for emphasis):** - ***Convexity Caution3***: Avoid duration4 extension that is not properly compensated via higher yield. - ***Cushion Bonds5***: Pursue bonds priced to a near-term call date that have underappreciated company-specific characteristics that may cause duration to extend while providing a commensurate yield pick-up. - ***BBBs over BBs***: Favor BBB rated credits that have stable or improving credit profiles. - ***Lower-rated High Yield Credit:*** Focus on B- and CCC instruments that have experienced over-reaction to negative news and/or capital flows. - ***Leveraged Loans and Out-of-Favor Industries***: Seek loans that have been subject to “forced selling” conditions and explore industry sectors that have been abandoned by investors. It is “in our DNA” to emphasize credit selection over interest rate prognostication. Although we will not shy away from opportunities in longer-dated instruments where the potential risk-adjusted return outweighs interest rate risk, we tend to focus on shorter maturities.   **More than 70% of the US High Yield Index is Call Constrained;** **Index Duration is at Record Low6** ![Image 3-4](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%203-4.png?width=888&name=Image%203-4.png)   The decline in interest rates and narrowing of credit spreads experienced in 2019 has caused more than 70% of the high yield (HY) market to become “call-constrained” and duration for the market to fall to the lowest level since 2012. Further capital appreciation is constrained with the expectation that issuers will redeem their debt early (prior to maturity) to take advantage of current market conditions. A portfolio of call-constrained bonds may appear to have low duration but is subject to “extension risk” should market conditions change to diminish the likelihood of early repayment, a concept known as “negative convexity.”  ![Image 4-5](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%204-5.png?width=918&name=Image%204-5.png) **Given that BB bonds represent nearly 50% of the high yield market8 and approximately 87% of BB bonds are call-constrained, this segment of the index provides a good example of the risk posed by negative convexity. The table above illustrates that an increase in credit spreads or rates by 100 basis points (bps) is likely to extend out the expected repayment date from the call date to maturity by 1.40 years. Should this occur instantly, the yield would increase by 57 basis points, but the index would experience an immediate principal loss of 3.7 points, erasing over 95% of the expected return for the year.**   **Large Percentage of Callable Bonds are not Redeemed9** ![Image 5-6](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%205-6.png?width=931&name=Image%205-6.png)   The rise in the portion of the high yield market that is call-constrained has also increased the number of cushion bonds, a segment in which we actively invest. Moreover, as shown above, a significant portion of bonds remain outstanding even after their Yield-to-Worst (“YTW”) call date. Why is that? Corporations may put off repaying a bond prior to maturity even though, economically, they would benefit, for strategic reasons. Similarly, a homeowner may forego refinancing a mortgage because of retirement plans that include selling the house in the next several years. Thus, **part of our strategy is to identify cushion bonds that may extend and capture greater yield than market expectation. An example of this potential opportunity arises when private equity funds are in their harvest periods during which they will be realizing gains from their leveraged buyouts.**   **BBBs as a % of Total U.S. Corporate Bond Market10** **![Image 6-1](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%206-1.png?width=883&name=Image%206-1.png)**   Unlike high yield bonds, most investment grade debt has good call protection. Further, price movement of investment grade (IG) bonds tends to be more sensitive to interest rate movement while high yield bond prices tend to be more sensitive to changes in credit spreads. **Our concern that BB credit spreads are tight relative to BBBs supersedes our concern about rising interest rates**, although we suspect the yield curve will steepen.11 The population of BBB corporate bonds has grown from less than $800 billion in 2007 to over $3.5 trillion at the end of 201912. This has been driven by issuers’ willingness to allow their credit quality to decline and investors’ willingness to buy. Ultimately, when an economic downturn occurs, there will be a portion of the BBB segment that will be downgraded into high yield. As a result, the influx from downgrades may swamp the high yield universe, particularly BB credits. Assuming investor demand is static, a scarcity of BBBs and an abundance of BBs would occur, causing BBB spreads to narrow and BB spreads to widen. Historically, 7-10% of BBBs are downgraded during an economic downturn, which would increase the BB universe by approximately 50%13. Further, an economic downturn is not necessary if the life cycle of businesses continues to be challenged and shortened by advancements in technology and “easy money” capital markets. **The technical pressures that BBBs now pose to the BB universe, combined with BB negative convexity and absolute tight spreads between the BBBs and BBs favors investing in BBB credits over BBs.**   **Option Adjusted Spread Ratios14** ![Image 7](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%207.png?width=871&name=Image%207.png)   Credit spreads for single A and BBB bonds are narrow versus their historic average, but solidly within one standard deviation15. In the case of high yield, CCC spreads are a little bit below their historic average and single B spreads are narrow relative to historic levels, but still inside one standard deviation. Notably, however, BB credit spreads are very narrow versus history, nearly one standard deviation lower than average16. Taking this analysis a step further, the graph above shows the ratio of option-adjusted credit spreads17 (“OAS”) between different credit qualities. Clearly, the increase in yield that can be achieved by venturing from investment grade to high yield, in this case from BBB to BB, has diminished over the last several years to nearly the narrowest level in over 20 years. In contrast, there has been a sharp increase in the OAS that may be captured by moving from the highest quality high yield bond, BB, to the lowest, CCC. This graphically illustrates the **dispersion that has taken place in the high yield market, with investors aggressively bidding for BB credit while shunning CCC. The bifurcation in the high yield market provides potential, particularly among B- and CCC credits, to find attractive yields ignored by others.** **Implied Zero Coupon Bond Price of Top 50 On-the-Run 5y IG and HY CDS18** **(12/31/19)** ![Image 8](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%208.png?width=927&name=Image%208.png)   Obviously, lower quality high yield credit cannot be painted with a broad brush. Using the market price for credit default swaps to derive an implied price for zero-coupon bonds, shown in the graph above, illustrates that the probability of a default event is extremely low for investment grade credits. There is a sharp increase in the probability of a default event in moving from BBB to BB, but, curiously, market pricing suggests that the market is reflecting little difference in credit risk between BB and B credits. Moreover, with a significant portion of the CCC credits in the sample priced 79-92, the market is indicating mispriced prospects within the CCC segment. A low interest rate environment provides multiple options for companies to de-lever proactively, such as refinancing or obtaining higher values for asset dispositions. **At year end, the OAS of CCCs relative to BBs was greater than 5x, one of the highest levels over the past 23 years. This excess spread multiple of CCCs is not commensurate with increased market and credit risk of BBs for the same period.**    **Leveraged Loan Universe Ownership by Fund Type19** ![Image 9](https://blog.crossingbridgefunds.com/hs-fs/hubfs/Image%209.png?width=910&name=Image%209.png)   Over the last ten years, the leverage loan market’s size has more than doubled to almost $1.2 trillion and collateralized loan obligations20 (“CLOs”) have increased their ownership of this asset class from 50% to over 70%, around $850 billion21. This growth has led CLO managers to become more aggressive in constructing their portfolios resulting in looser underwriting standards with respect to covenants and financial metrics. Further, the structure of CLOs incentivizes holding loans to maturity rather than realizing a capital loss. This dynamic impacts pricing in the leveraged loan market. **Often, prices of deteriorating credits remain too high until outside forces demand a day of reckoning. One such force is the downgrade of a credit to CCC because CLOs are typically limited in their ability to hold loans with this rating.** **Since CLOs tend to hold loans for the long term and represent over 70% of the loan market, the incremental seller of a loan may create a sudden price decline. In 2019, mutual funds dedicated to this asset class incurred investor redemptions causing net outflows. This was partially** responsible for 14%22 of the loan market trading below a price of 90 in 4Q1923. In addition, **downgrades and increased defaults made buyers more circumspect driving the bifurcation in the loan market between higher quality and lower quality issues.** This has provided some openings for advantageous loan purchases, but it will take larger price declines for opportunistic hedge funds to increase their commitment to the asset class from their current 6% participation back toward their 32% share 10 years ago. In the alternative scenario, in which the yield curve steepens and the credit environment remains benign, we are likely to see an acceleration in the growth of CLOs that will reverse the direction of loan prices, but further encourage aggressive lending practices. **Meanwhile, we are building a shopping list.** Investors’ preference for higher quality over lower quality credit naturally has led them to avoid certain troubled industries such as energy and retail. While mucking the stable one can find a diamond in the rough, but it requires the patience of looking for a needle in a haystack. (Yes, I know I am mixing metaphors). John Meynard Keynes said, "The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty."24  With active patience, we hope to have Keynes’ mindfulness and aspire to perfect vision in 2020. ![image-18](https://blog.crossingbridgefunds.com/hs-fs/hubfs/image-18.png?width=174&name=image-18.png) David Sherman and the CrossingBridge team   **Endnotes** 1 Federal Reserve Bank of New York; *Credit Call,* Barclays Research, January 7th, 2020; Conference Board Leading Economic Index 2 “Full employment” occurs when labor is being most efficiently engaged without raising inflation. Today, some economists are puzzled that inflation remains below the Federal Reserve’s 2% target despite full employment. 3 Bond prices move inversely to changes in yields (either due to movement in Treasury rates or credit spreads); an increase in yields will cause bond prices to decline and vice versa. Duration measures the sensitivity of bond prices to changes in yields while convexity reflects the rate at which duration increases or decreases based on the change in the rate environment. For individual securities, specific provisions, such as the borrower’s ability to prepay, may impact convexity. 4 Duration is sometimes confused with bond maturity because “Macaulay duration”, measured in years, is the weighted average time until all of a bond’s cash flows are paid. In the context above, however, we are referring to “modified duration” which measures the sensitivity of a bonds’ price to a 1% change in interest rates. 5 Cushion bonds are fixed coupon obligations for which the yield-to-maturity exceeds the yield-to-call. 6 *US Credit Alpha,* Barclays Research, January 17th, 2020 7 ICE BofA US High Yield Index, Bloomberg 8 ICE BofA US High Yield Index 9 *Credit Strategy Daily,* Credit Suisse Research, January 21st, 2020 10 ICE BofA US Corporate Index, ICE BofA BBB US Corporate Index, ICE BofA US High Yield Index,      Bloomberg 11 In addition to various macroeconomic factors, the growing supply of securities with longer maturities suggests that the yield curve is likely to steepen. Longer maturities for recently issued corporate bonds reflects borrowers’ preference to lock in low rates for longer periods. Similarly, on January 16, 2020, the U.S. Treasury announced its intention to issue 20-year U.S. Treasury bonds for the first time in 34 years. 12 *Macro Credit Musings*, Jefferies, January 21, 2020 13 *Macro Credit Musings*, Jefferies, January 21, 2020 14 ICE BofA US Corporate Index, ICE BofA BBB US Corporate Index, ICE BofA US High Yield Index, Bloomberg 15 The option-adjusted spread is the yield-to-maturity for a fixed-rate bond less the risk-free rate (e.g. U.S. Treasury rate of similar maturity), adjusted for embedded call options permitting the issuer to redeem the bond before maturity. 16 Components of the ICE BofA US Corporate Index going back to 12/31/96, CrossingBridge calculation 17 Components of the ICE BofA US High Yield Index going back to 12/31/96, CrossingBridge calculation 18 Components of the ICE BofA US High Yield Index going back to 12/31/96, CrossingBridge calculation 19 Bank of America Research, Bloomberg, CrossingBridge estimates 20 Collateralized loan obligations are actively managed, diversified pools of loans which provide collateral for issuance of multiple tranches of debt and equity. The pool of loans provides cash flow to fund payment of principal and interest to the various tranches which is distributed based on a specified order of priority of the tranches. 21 *Collateral Thinking,* Bank of America Research, January 15th, 2020*;* Jefferies Research; S&P Global LCD 22 For comparison purposes, per Credit Suisse Research, 10.2% of the high yield bond market was trading at 90 or below as December 31, 2019. 23 The essay was titled 'Liberalism and Labour' (1926). This essay originated as a speech given at the Manchester Reform Club, 9 February 1926, at a time when the numbers of the three parties in the House of Commons caused speculation as to a possible combination of Liberals and Labour against the Conservatives. The address was published as an article entitled ‘Liberalism and Labour’ in the Nation and Athenaeum, 20 February 1926. 24 Credit Suisse Research **Definitions** **Yield to Worst****:** the lowest potential yield that can be received on a bond without the issuer actually defaulting. The YTW is calculated by making worst-case scenario assumptions on the issue by calculating the return that would be received if the issuer uses provisions, including prepayments, calls or sinking funds. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios. **Yield to Maturity:** the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. **Investment Grade:** a rating that signifies a municipal or corporate bond presents a relatively low risk of default. Bond rating firms like Standard & Poor’s and Moody's use different designations, consisting of the upper- and lower-case letters "A" and "B," to identify a bond's credit quality rating. ### Recent Posts ### Posts By Topic - [Market Observations](https://blog.crossingbridgefunds.com/blog/tag/Market-Observations) - [Quarterly Commentary](https://blog.crossingbridgefunds.com/blog/tag/Quarterly-Commentary) ## Funds [CrossingBridge Ultra-Short Duration Fund (CBUDX)](https://www.crossingbridgefunds.com/ultra-short-duration-fund) [CrossingBridge Low Duration High Income Fund (CBLDX)](https://www.crossingbridgefunds.com/low-duration-high-income-fund) [CrossingBridge Responsible Credit Fund (CBRDX)](https://www.crossingbridgefunds.com/responsible-credit-fund) [RiverPark Strategic Income Fund (RSIIX)](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund) [CrossingBridge Nordic High Income Bond Fund (NRDCX)](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund) ## Subscribe to Insights #### [Next Q1 2020 Commentary - Going Viral Quarterly Commentary](https://blog.crossingbridgefunds.com/blog/q1-2020-commentary-going-viral) #### [Previous Q3 2019 Commentary - Being There (Reprised) Quarterly Commentary](https://blog.crossingbridgefunds.com/blog/q3-2019-commentary-being-there-reprised) ![CrossingBridge Funds](https://blog.crossingbridgefunds.com/hubfs/CrossingBridge_January2019%20Theme/Images/footer-logo.png) --- **Address** 427 Bedford Road, Suite 220 Pleasantville, NY 10570 **Disclosure** [Form ADV](https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=286594) [Terms of Use & Disclaimers](https://www.crossingbridgefunds.com/terms-of-use) [Privacy Policy](https://www.crossingbridgefunds.com/privacy-policy) **Get In Touch** P: (914) 741-1515 [Contact Us](https://www.crossingbridgefunds.com/contact) --- ### The prospectus for the CrossingBridge Ultra-Short Duration Fund, CrossingBridge Low Duration High Income Bond Fund, CrossingBridge Responsible Credit Fund, CrossingBridge Nordic High Income Bond Fund, and RiverPark Strategic Income Fund can be found by clicking here.  To obtain a hardcopy of the prospectus, call 855-552-5863. Per rule 30e-3, the fiscal [Q1 holdings](https://blog.crossingbridgefunds.com/hubfs/Regulatory/FY_Q1_Holdings.pdf) and [Q3 holdings](https://blog.crossingbridgefunds.com/hubfs/Regulatory/FY_Q3_Holdings.pdf) can be found by clicking on the respective links.   Please read and consider the prospectus(es) carefully before investing.   ### **Any 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 quoted. Performance data current to the most recent month end may be obtained by calling 914-741-1515. Please Find the Most Current standardized performance For Each Fund as of the most recent quarter-end By clicking the following links:** [CrossingBridge Low Duration High Yield Fund](https://www.crossingbridgefunds.com/low-duration-high-income-fund)**,** [**CrossingBridge Ultra-Short Duration Fund**](https://www.crossingbridgefunds.com/ultra-short-duration-fund)**, ** [**CrossingBridge Responsible Credit Fund**](https://www.crossingbridgefunds.com/responsible-credit-fund)**,** [**RiverPark Strategic Income Fund**](https://www.crossingbridgefunds.com/riverpark-strategic-income-fund#Performance)**, AND [Nordic High Income Bond Fund.](https://www.crossingbridgefunds.com/nordic-high-income-bond-fund)** ### All performance data greater than 1 year is annualized. ### THE FUNDS ARE OFFERED ONLY TO UNITED STATES RESIDENTS, AND INFORMATION ON THIS SITE IS INTENDED ONLY FOR SUCH PERSONS. NOTHING ON THIS WEBSITE SHOULD BE CONSIDERED A SOLICITATION TO BUY OR AN OFFER TO SELL SHARES OF THE FUND IN ANY JURISDICTION WHERE THE OFFER OR SOLICITATION WOULD BE UNLAWFUL UNDER THE SECURITIES LAWS OF SUCH JURISDICTION. ### **CrossingBridge Funds’ Disclosure: MUTUAL FUND & ETF INVESTING INVOLVES RISK. PRINCIPAL LOSS IS POSSIBLE. INVESTMENTS IN FOREIGN SECURITIES INVOLVE GREATER VOLATILITY AND POLITICAL, ECONOMIC AND CURRENCY RISKS AND DIFFERENCES IN ACCOUNTING METHODS. INVESTMENTS IN DEBT SECURITIES TYPICALLY DECREASE IN VALUE WHEN INTEREST RATES RISE. THIS RISK IS USUALLY GREATER FOR LONGER-TERM DEBT SECURITIES. INVESTMENT IN LOWER-RATED AND NON-RATED SECURITIES PRESENTS A GREATER RISK OF LOSS TO PRINCIPAL AND INTEREST THAN HIGHER-RATED SECURITIES. BECAUSE THE FUND MAY INVEST IN ETFS AND ETNS, THEY ARE SUBJECT TO ADDITIONAL RISKS THAT DO NOT APPLY TO CONVENTIONAL MUTUAL FUND, INCLUDING THE RISKS THAT THE MARKET PRICE OF AN ETF'S AND ETN'S SHARES MAY TRADE AT A DISCOUNT TO ITS NET ASSET VALUE ("NAV"), AN ACTIVE SECONDARY TRADING MARKET MAY NOT DEVELOP OR BE MAINTAINED, OR TRADING MAY BE HALTED BY THE EXCHANGE IN WHICH THEY TRADE, WHICH MAY IMPACT A FUND'S ABILITY TO SELL ITS SHARES. THE VALUE OF ETN'S MAY BE INFLUENCED BY THE LEVEL OF SUPPLY AND DEMAND FOR THE ETN, VOLATILITY AND LACK OF LIQUIDITY. THE FUND MAY INVEST IN DERIVATIVE SECURITIES, WHICH DERIVE THEIR PERFORMANCE FROM THE PERFORMANCE OF AN UNDERLYING ASSET, INDEX, INTEREST RATE OR CURRENCY EXCHANGE RATE. DERIVATIVES CAN BE VOLATILE AND INVOLVE VARIOUS TYPES AND DEGREES OF RISKS, AND, DEPENDING UPON THE CHARACTERISTICS OF A PARTICULAR DERIVATIVE, SUDDENLY CAN BECOME ILLIQUID. INVESTMENTS IN ASSET BACKED, MORTGAGE BACKED, AND COLLATERALIZED MORTGAGE BACKED SECURITIES INCLUDE ADDITIONAL RISKS THAT INVESTORS SHOULD BE AWARE OF SUCH AS CREDIT RISK, PREPAYMENT RISK, POSSIBLE ILLIQUIDITY AND DEFAULT, AS WELL AS INCREASED SUSCEPTIBILITY TO ADVERSE ECONOMIC DEVELOPMENTS. INVESTING IN COMMODITIES MAY SUBJECT THE FUND TO GREATER RISKS AND VOLATILITY AS COMMODITY PRICES MAY BE INFLUENCED BY A VARIETY OF FACTORS INCLUDING UNFAVORABLE WEATHER, ENVIRONMENTAL FACTORS, AND CHANGES IN GOVERNMENT REGULATIONS. SHARES OF CLOSED-END FUND FREQUENTLY TRADE AT A PRICE PER SHARE THAT IS LESS THAN THE NAV PER SHARE.  THERE CAN BE NO ASSURANCE THAT THE MARKET DISCOUNT ON SHARES OF ANY CLOSED-END FUND PURCHASED BY THE FUND WILL EVER DECREASE OR THAT WHEN THE FUND SEEK TO SELL SHARES OF A CLOSED-END FUND IT CAN RECEIVE THE NAV OF THOSE SHARES.  THERE ARE GREATER RISKS INVOLVED IN INVESTING IN SECURITIES WITH LIMITED MARKET LIQUIDITY.** ### **DEFINITIONS: THE S&P 500, OR SIMPLY THE S&P,** IS A STOCK MARKET INDEX THAT MEASURES THE STOCK PERFORMANCE OF 500 LARGE COMPANIES LISTED ON STOCK EXCHANGES IN THE UNITED STATES. THE **ICE BOFA INVESTMENT GRADE INDEX** TRACKS THE PERFORMANCE OF US DOLLAR DENOMINATED INVESTMENT GRADE RATED CORPORATE DEBT PUBLICALLY ISSUED IN THE US DOMESTIC MARKET.  THE **ICE BOFA HIGH YIELD INDEX** TRACKS THE PERFORMANCE OF US DOLLAR DENOMINATED BELOW INVESTMENT GRADE RATED CORPORATE DEBT PUBLICALLY ISSUED IN THE US DOMESTIC MARKET.  **EBITDA** IS A COMPANY'S EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION IS AN ACCOUNTING MEASURE CALCULATED USING A COMPANY'S EARNINGS, BEFORE INTEREST EXPENSES, TAXES, DEPRECIATION, AND AMORTIZATION ARE SUBTRACTED, AS A PROXY FOR A COMPANY'S CURRENT OPERATING PROFITABILITY.  A **BASIS POINT (BP)** IS 1/100 OF ONE PERCENT.  **PARI-PASSU** IS A LATIN TERM THAT MEANS 'ON EQUAL FOOTING' OR 'RANKING EQUALLY'. IT IS AN IMPORTANT CLAUSE FOR CREDITORS OF A COMPANY IN FINANCIAL DIFFICULTY WHICH MIGHT BECOME INSOLVENT. IF THE COMPANY'S **DEBTS** ARE **PARI PASSU**, THEY ARE ALL RANKED EQUALLY, SO THE COMPANY PAYS EACH CREDITOR THE SAME AMOUNT IN INSOLVENCY.  **LIBOR** IS THE AVERAGE INTERBANK INTEREST RATE AT WHICH A SELECTION OF BANKS ON THE LONDON MONEY MARKET ARE PREPARED TO LEND TO ONE ANOTHER.  **YIELD TO MATURITY (YTM) **IS THE TOTAL RETURN ANTICIPATED ON A BOND (ON AN ANNUALIZED BASIS) IF THE BOND IS HELD UNTIL IT MATURES.  **FREE CASH FLOW (FCF) **IS THE CASH A COMPANY PRODUCES THROUGH ITS OPERATIONS, LESS THE COST OF EXPENDITURES ON ASSETS. IN OTHER WORDS, FREE CASH FLOW IS THE CASH LEFT OVER AFTER A COMPANY PAYS FOR ITS OPERATING EXPENSES AND CAPITAL EXPENDITURES. **DURATION **IS A MEASURE OF THE SENSITIVITY OF THE PRICE OF A BOND OR OTHER DEBT INSTRUMENT TO A CHANGE IN INTEREST RATES.  **DEBTOR-IN-POSSESSION (DIP)** FINANCING IS IS A SPECIAL KIND OF FINANCING MEANT FOR COMPANIES THAT ARE IN BANKRUPTCY. ONLY COMPANIES THAT HAVE FILED FOR BANKRUPTCY PROTECTION UNDER CHAPTER 11 ARE ALLOWED TO ACCESS DIP FINANCING, WHICH USUALLY HAPPENS AT THE START OF A FILING. DIP FINANCING IS USED TO FACILITATE THE REORGANIZATION OF A DEBTOR-IN-POSSESSION (THE STATUS OF A COMPANY THAT HAS FILED FOR BANKRUPTCY) BY ALLOWING IT TO RAISE CAPITAL TO FUND ITS OPERATIONS AS ITS BANKRUPTCY CASE RUNS ITS COURSE.  **YIELD TO CALL (YTC) **REFERS TO THE RETURN A BONDHOLDER RECEIVES IF THE BOND IS HELD UNTIL THE CALL DATE, WHICH OCCURS SOMETIME BEFORE IT REACHES MATURITY. The SEC yield is a standard yield calculation developed by the U.S. Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the period after the deduction of the fund's expenses. It is also referred to as the "standardized yield". **Business Development Companies (BDCs)** are investment vehicles that provide funding to small, medium-sized, and financially distressed companies, aiming to help them grow and regain financial stability. ### **Fund holdings and sector allocations are subject to change and should not be considered recommendations to buy or sell any security. ANY DIRECT OR INDIRECT REFERENCE TO SPECIFIC SECURITIES, SECTORS, OR STRATEGIES ARE PROVIDED FOR ILLUSTRATIVE PURPOSES ONLY.  When pertaining to Commentaries posted by CrossingBridge, it REPRESENTS THE PORTFOLIO MANAGER’S OPINION AND IS AN ASSESSMENT OF THE MARKET ENVIRONMENT AT A SPECIFIC TIME AND IS NOT INTENDED TO BE A FORECAST OF FUTURE EVENTS OR A GUARANTEE OF FUTURE RESULTS. THIS INFORMATION SHOULD NOT BE RELIED UPON BY THE READER AS RESEARCH OR INVESTMENT ADVICE REGARDING THE FUND OR ANY SECURITY IN PARTICULAR. SPECIFIC PERFORMANCE OF ANY SECURITY MENTIONED IS AVAILABLE UPON REQUEST.  ** ### **DIVERSIFICATION DOES NOT ASSURE A PROFIT NOR PROTECT AGAINST LOSS IN A DECLINING MARKET.** ### A STOCK IS A TYPE OF SECURITY THAT SIGNIFIES OWNERSHIP IN A CORPORATION AND REPRESENTS A CLAIM ON PART OF THE CORPORATION'S ASSETS AND EARNINGS. A BOND IS A DEBT INVESTMENT IN WHICH AN INVESTOR LOANS MONEY TO AN ENTITY THAT BORROWS THE FUND FOR A DEFINED PERIOD OF TIME AT A FIXED INTEREST RATE. A STOCK MAY TRADE WITH MORE OR LESS LIQUIDITY THAN A BOND DEPENDING ON THE NUMBER OF SHARES AND BONDS OUTSTANDING, THE SIZE OF THE COMPANY, AND THE DEMAND FOR THE SECURITIES. THE SECURITIES AND EXCHANGE COMMISSION (SEC) DOES NOT APPROVE, ENDORSE, NOR INDEMNIFY ANY SECURITY.  DURATION IS A MEASURE OF SENSITIVITY OF THE PRICE OF A BOND OR OTHER DEBT INSTRUMENT TO A CHANGE IN INTEREST RATES OR CREDIT SPREADS. ### TAX FEATURES MAY VARY BASED ON PERSONAL CIRCUMSTANCES. CONSULT A TAX PROFESSIONAL FOR ADDITIONAL INFORMATION. ### Crossingbridge advisors, LLC is the Adviser to The CrossingBridge ultra-short duration fund, the crossingbridge low duration high yield fund, the crossingbridge Responsible credit fund and the riverpark strategic income fund which are distributed by QUASAR DISTRIBUTORS, LLC.