The third quarter of 2026 brought further gains for U.S. equities, although the advance was smaller than in Q2. The S&P 500 Total Return Index gained 2.30% for the quarter ended September 30, 2026, despite declining 0.35% in September. Equity markets continued to contend with higher interest rates, renewed pressure on energy prices, and uncertainty surrounding the conflict in the Middle East.
Strong corporate earnings and investment in artificial intelligence remained important supports for equities. At the same time, rising yields created a more difficult environment for bonds. On September 16, the Federal Reserve raised its target range by 0.25% to 3.75%–4.00%. The Fed described economic growth as solid and inflation as elevated.
Fixed-income markets faced a particularly difficult environment. Higher Treasury yields pressured bond prices, and the Bloomberg Aggregate Bond Index returned -3.50% for the quarter. The combination of resilient growth, elevated energy prices, geopolitical uncertainty, and a more hawkish Federal Reserve challenged expectations for near-term policy easing.
Credit markets remained comparatively stable for most of the period. High-yield spreads stayed near historically tight levels, reflecting continued confidence in corporate fundamentals and economic growth. Sentiment weakened late in the quarter, however, as the ICE BofA U.S. High Yield Option-Adjusted Spread widened abruptly by approximately 45 basis points over the course of seven days. The widening appeared consistent with a broader reduction in risk appetites as investors reassessed the potential economic implications of a sustained period of elevated interest rates and the impact of higher borrowing costs on refinancing conditions and corporate credit fundamentals.
The effect of rising rates was also evident in equity-market breadth. During the final five weeks of the quarter, investors moved away from rate-sensitive, consumer-sensitive, and economically sensitive companies. The percentage of stocks trading above their 200-day moving averages declined to levels last observed during the first-quarter market pullback. Performance became increasingly concentrated among larger-cap, AI, and other technology-related companies as the quarter progressed. This divergence was reflected in the performance of the S&P 500 Equal Weight Index, which returned -1.87% for the quarter ended September 30, 2026, despite the positive return of the capitalization-weighted S&P 500 Total Return Index.
The Denali Structured Return Strategy Fund returned 1.47% in the third quarter of 2026, net of fees, compared to the S&P 500 Total Return Index’s gain of 2.30%. The Fund trailed the index by 0.83%.
The Fund entered Q3 with an approximately 5%-wide call spread. As discussed in the Q2 review, the cost of this package was lower than at the start of Q2. Even so, a modestly lower return in the private credit portion of the portfolio, combined with the call spread contributing approximately 0.00% for the quarter, resulted in a net return of 1.47%.
Q3 returns were attributable to the following portfolio components:
Call spread options: approximately 0.00%.
Private credit portfolio: approximately 1.52%.
Toward quarter-end, we spent an additional 5 basis points on closing out the cap, increasing the total spend for the quarter. Even though the decision did not end up paying off, we viewed this as prudent given the macro-driven market and the potential for conditions to change quickly.
Returns are net of fees.
The end of Q3 marks two and a half years since the Fund’s first full-quarter options period began on March 31, 2024. From March 31, 2024 through September 30, 2026, Denali returned approximately 34.59% cumulatively, net of fees, compared to approximately 50.29% for the S&P 500 Total Return Index. This period is shown to align with the Fund’s quarterly options cycle and begins after the Fund’s inception date; performance since inception is shown in the performance information. The underperformance is largely attributable to the capped nature of the strategy, which resulted in underperformance in Q2 of 2025 and Q2 of 2026, when the S&P 500 Total Return Index was up 10.94% and 15.20%, respectively. The Fund has outperformed the S&P 500 Total Return Index in each quarter since inception in which the index declined; however, the Fund has lagged the index in strongly rising quarters.
The strategy pairs private credit income with a defined range of equity participation through call spreads linked to the S&P 500. The cap can limit participation in strong equity markets, while in flat or declining markets, the options can expire worthless, and the credit portfolio can also incur losses. The Fund’s total return depends on both components of the portfolio.
*Inception date of March 12, 2024 | net of fees | Source: Ycharts
**Partial year: 3/12/2024 – 12/31/2024
The performance data quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when repurchased, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.
As of the end of the third quarter, the Fund held approximately 50 private credit investments across 23 different strategy partners. Allocating across multiple investments, private credit asset classes, and strategy partners is a basic tenet of the Fund’s approach and is intended to help manage portfolio risk, although it does not eliminate risk As is always the case, the Team continues to focus on those areas of the private credit markets that we believe are less crowded and where access to capital sources is challenging, seeking investments that we believe offer solid risk-adjusted returns.
The Team has been conducting enhanced diligence on existing investments to ensure that those investments are meeting our objectives and performing to expectations. Where possible and when we identify an investment with a changing risk profile or that is not meeting expectations, the Team will look to reallocate capital across the portfolio to enhance the risk-adjusted performance of the portfolio.
On 9/30/26, the Team opened a 7,690 | 8,070 long S&P 500 call spread for Q4, expiring on December 31st. The spread is designed to provide approximately 5% of gross upside participation in the S&P 500. The cost of the options was still in the normalized range at ~2.30% for full notional exposure(the value of the underlying assets referenced by the options). For the Fund to realize full participation in S&P 500 gains up to 5%, the credit side of the portfolio would need to return 2.354% or greater to offset the costs of opening the spread. This is not a projection of Fund performance; there is no assurance the credit portfolio will achieve this return, and the options may expire worthless if the S&P 500 is flat or declines during the quarter.
As always, we are grateful for the trust you place in the Liquid Strategies team. Heading into Q4, our approach remains focused on combining private credit income with a defined range of S&P 500 participation through its options allocation. The objective is to provide meaningful equity upside while managing the risks in both sides of the portfolio.
Citations:
Liquid Strategies, DNLIX fund performance, as of September 30, 2026. https://lsfunds.com/dnlix
J.P. Morgan Asset Management, “Review of Markets over the third quarter of 2026,” October 1, 2026. https://am.jpmorgan.com/ch/en/asset-management/adv/insights/market-insights/market-updates/monthly-market-review/
Federal Reserve, September 16, 2026 FOMC statement. https://www.federalreserve.gov/monetarypolicy/files/monetary20260916a1.pdf
DISCLOSURES
The Fund's shares require a minimum initial investment of $1,000 and $100 for subsequent investments. Distributions are not guaranteed. As a regulated investment company, the Fund generally must distribute at least 90% of its investment company taxable income annually. Distributions may include a return of capital. A return of capital is a return of a portion of an investor's original investment and should not be confused with "yield" or "income." There is no assurance a change in market conditions or other factors will not result in a change in future distributions.
Denali Structured Return Strategy Fund is a closed-end interval fund.
Total annual fund operating expenses are 3.22%. Total annual fund operating expenses after fee waiver and expense reimbursement are 3.08%. The management fee is 1.65%, and the Adviser has contractually agreed to an expense limitation (cap) of 1.99%. The Adviser and the Fund have entered into an Expense Limitation Agreement under which the Adviser has agreed to waive its management fees and to pay or absorb the ordinary operating expenses of the Fund (excluding borrowing costs, dividends, and interest on securities sold short, brokerage commissions, acquired fund fees and expenses and extraordinary expenses), to the extent that its management fees plus the Fund's ordinary annual operating expenses exceed 1.99% per annum of the Fund's average daily net assets. Such Expense Limitation Agreement will continue in effect through November 21, 2027 and may not be terminated by the Adviser, but it may be terminated by the Board of Trustees, upon 60 days written notice to the Adviser. Any waiver and reimbursement by the Adviser is subject to repayment by the Fund within the three years from the date the Adviser waived such payment, if the Fund is able to make the repayment without exceeding the lesser of the expense limitation in place at the time of the waiver and reimbursement or the current expense limitation and the repayment is approved by the Board of Trustees.
See “Management of the Fund.” The Adviser uses call option spreads to capture a portion of positive equity market returns without exposing the Fund to significant equity market losses. Generally, when the Fund purchases a call option, the Fund has the right, but not the obligation, to buy an asset at a specified price (strike price) within a specific time period or at the end of a time period. Call options can expire worthless in a flat or down equity market, but are not further linked to equity losses. The Adviser anticipates investing in call spreads on a quarterly basis by investing in call options primarily with three-month maturities and strike prices that are near (within one percent above) the then-current level of the S&P 500® Index while writing the same amount of call options with three-month maturities and strike prices that are approximately 5% higher than the then-current level the index. The purchased call options are commonly referred to as being at-the-money if the strike price is at the then-current level of the index, or out-of-the money if the strike price is above the then-current level of the index. Investment options involve risk and are not suitable for all investors. Prior to buying or selling options, an investor should read and understand the standardized options disclosure document, "Characteristics and Risks of Standardized Options," which is available from The Options Clearing Corporation at www.theocc.com or by calling 1-888-678-4667.
Advisory services are provided through Liquid Strategies, LLC located at 3550 Lenox Rd NE, Ste 2550 Atlanta, GA 30326.
The statements contained herein are based upon the opinions of Liquid Strategies and the data available at the time of publication and are subject to change at any time without notice. This communication does not constitute investment advice and is for informational purposes only, is not intended to meet the objectives or suitability requirements of any specific individual or account, and does not provide a guarantee that the Fund’s investment objective will be met. An investor should assess his/her own investment needs based on his/her own financial circumstances and investment objectives. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by Liquid Strategies or its affiliates to buy or sell any securities or investments or hire any specific manager. An offering of Fund shares is made only by the Fund’s prospectus. Liquid Strategies prepared this update utilizing information from a variety of sources that it believes to be reliable.
It is important to remember that there are risks inherent in any investment and that there is no assurance that any investment, asset class, style or index will provide positive performance over time. Diversification and strategic asset allocation do not guarantee a profit or protect against a loss in a declining markets. Past performance is not a guarantee of future results. All investments are subject to risk, including the loss of principal. Index comparisons are provided for illustrative purposes only; indices are unmanaged, do not reflect the deduction of fees or expenses, and you cannot invest directly in an index.
RISK FACTORS:
An investment in the Fund’s shares is subject to risks. The value of the Fund’s investments will increase or decrease based on changes in the prices of the investments it holds. This will cause the value of the Fund’s shares to increase or decrease. You could lose money by investing in the Fund. By itself, the Fund does not constitute a complete investment program. Before investing in the Fund, you should consider carefully the following risks the Fund faces, together with the other information contained in the prospectus.
Since the Fund is non-diversified, it is subject to a higher reduction of capital and volatility than a fund more proportionately allocated among a large number of securities. An investment in the Fund involves risk. The Fund is new with no significant operating history by which to evaluate its potential performance. There can be no assurance that the Fund’s strategy will be successful. The Fund may leverage its investments by “borrowing.” The use of leverage increases both the risk of loss and profit potential.
Private credit investments are generally illiquid, may be difficult to value, and are subject to credit, default, and interest rate risk. Because many of the Fund’s private credit investments are not traded on an exchange, they are valued at fair value as determined in good faith under the Fund’s valuation procedures, and the value realized upon sale may differ from the Fund’s valuation.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other important information about the investment company. For a prospectus with this and other important information about the Fund, please visit the Documents section at www.LSfunds.com/DNLIX or call 1-800-632-4027. Read the prospectus carefully before investing.
Shareholder Services: 1-800-632-4027
Investment Professionals: 770-350-8700 or info@LSfunds.com
Distributed by Foreside Fund Services, LLC, which is not affiliated with the Adviser.