NIAGARA INCOME OPPORTUNITIES FUND - YEAR-END REVIEW
Dear Investors,
As we reflect on the year 2024, we would like to express our gratitude for your trust and support. We are constantly mindful of the responsibility that trust entails, and it shapes how we approach every decision we make with respect to managing the Niagara Income Opportunities Fund.
The Fund completed its first full year since launching at the end of 2023. The year has proven to be rewarding given that the Fund has grown to over $80 million in assets under management (AUM) and that the portfolio management team has been able to deliver steady results to its investors through the execution of our multi-strategy private lending approach. The aforementioned success would not have been possible without the trust and confidence of our investors.
At Liquid Strategies, we prioritize accessibility and transparency, values we hope you’ve seen reflected in our communications and team’s dedication. Our portfolio management and sales teams remain readily available to support our constituents in whichever way is most helpful. We are energized by the progress made in 2024 and look forward to working together in 2025 as we navigate the opportunities ahead.
Sincerely,
Mark Garfinkel, Connor Allen and the Liquid Strategies Team
FUND SUMMARY
The Niagara Income Opportunities Fund is a continuously-offered, closed-end interval fund with a primary focus on current income generation through investment in a multi-strategy portfolio of private and public credit investments with high current cash yields.
PORTFOLIO STRATEGY
The private credit space spans a broad spectrum of alternative lending opportunities. The Niagara portfolio combines different styles of private alternative lending strategies into a single portfolio solution. A top priority for the Niagara portfolio team is risk management across three key pillars: 1) diversification; 2) credit management; and 3) liquidity management. This focus enables the portfolio team to construct a portfolio with the proper balance of income and risk.
Diversification: The Niagara strategy seeks to mitigate the risk of capital loss through diversification by segment, strategy, and number of loans across the portfolio. In addition, we establish concentration limitations and monitor and evaluate risk exposures across key portfolio metrics
Credit Management: The portfolio team focuses on lending strategy partners who have a proven ability to minimize downside risk and preserve capital. The team is committed to seeking out the highest quality lending partners that align with our disciplined criteria, including stringent underwriting guidelines, risk mitigation with excess collateralization and strict loan terms and covenants, and a focus on niche, under-banked lending markets.
Liquidity Management: The portfolio team manages the liquidity of the portfolio utilizing a combination of cash equivalents, readily marketable publicly traded securities, and short-duration private investments to maintain adequate portfolio liquidity. In addition, the team strives to maintain a short average maturity of the portfolio investments to provide maximum flexibility with respect to liquidity, while aiming to achieve the strategy goals of delivering high income.
PORTFOLIO DEVELOPMENTS
Throughout the year, the portfolio management team has constructed a portfolio with over 20 private credit investments across 15 different strategy partners, highlighting the increasing diversification of our underlying portfolio. This diversification across multiple private credit asset classes is a key to managing portfolio volatility and a basic tenet of the Fund’s approach.
The U.S. economy has been resilient in the aftermath of the post-pandemic economic hangover, which has translated into solid performance for our lending partners and the underlying loans that comprise the Niagara portfolio. Currently, each of our portfolio investments are performing in line with our forecasted expectations. While the Fed reduced short-term interest rates by a full 1.00% from September to year-end, the portfolio yield has been minimally impacted due to its combination of fixed and floating-rate loan investments in the underlying portfolio. In addition to the diversification noted above, the portfolio team has constructed the portfolio with an average maturity of 1.2 years, only enhancing the overall risk and liquidity profile of the portfolio.
MARKET OVERVIEW
The year 2024 was best characterized by significant interest rate volatility with wide swings in the 10-year Treasury yield in both directions, depending on changing expectations for economic growth and inflation. Early in the year, as economic data demonstrated moderating economic growth and inflation, the 10-year benchmark treasury rate fell from 4.71% to 3.62% by mid-September. The same data prompted the Federal Reserve to reduce the key federal funds rate by 0.50% on September 18th. To many market participants, it seemed that the Fed had successfully engineered a “soft landing” for the economy, managing that fine line between maintaining growth and moderating inflation pressures.
This decisive action by the Fed to reduce rates after a massive rate-hiking cycle may have been a bit premature, given that this move could spark a resurgence of inflation. Ironically, by the time the Fed finally reduced the Fed funds rate, interest rates had already bottomed and started to move upwards yet again after the cut. This rebound in rates highlights the market’s concern with the prospects for a re-acceleration in the rate of inflation. Interest rates responded accordingly with the same 10-year rate rising from the September lows to close the year at 4.58% in spite of two additional 0.25% rate cuts, putting a damper on investment grade bond returns for the quarter and the full year. As measured by the Bloomberg Barclay’s U.S. Aggregate Bond Index, bonds produced a total return of -3.06% for the 4th quarter and 1.25% for the full year.
Past performance is no guarantee of future results.
PERFORMANCE UPDATE
For the 4th quarter of 2024, the Niagara Income Opportunities Fund achieved a total return of 2.52%, bringing the calendar year total return to 10.25%, compared to the Morningstar LSTA US Leveraged Loan Index performance of 2.27% and 9.08% for the 4th quarter and year-to-date, respectively. The aforementioned interest rate volatility had very little, if any, impact on the performance of the Niagara portfolio, highlighting the potential benefit of the Niagara strategy to the fixed-income portion of an investor’s portfolio. See the table of returns for the Fund below.
Q4-24 PERFORMANCE
The Fund returned 2.52% during the quarter, demonstrating less volatility than the Bloomberg Aggregate Index, with a -3.06% return for the quarter.
2024 FULL YEAR PERFORMANCE
For the full year, the Fund generated a total return of 10.25%. The chart below demonstrates the steady month-to-month results of the fund compared to the Bloomberg Aggregate Index, with a 1.25% return for the year.
ASSET CATEGORY BREAKDOWN
PORTFOLIO CHARACTERISTICS
DISCLOSURES
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 investment objective of any model 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. Any offering may only be made pursuant to the securities laws, an offering document and related subscription materials all of which must be read and completed in their entirety. 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.
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 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 risk of loss and profit potential.
- Shares of the Fund are not listed on any securities exchange, which makes them inherently illiquid. There is no secondary market for the Fund’s shares, and it is not anticipated that a secondary market will develop.
- Shares of the Fund are not redeemable. Thus, an investment in the Fund may not be suitable for investors who may need the money they invest in a specified time frame.
- Although the Fund will offer to repurchase at least 5% of outstanding shares on a quarterly basis in accordance with the Fund’s repurchase policy, the Fund will not be required to repurchase shares at a shareholder’s option nor will shares be exchangeable for units, interests or shares of any security.
- The Fund is not required to extend, and shareholders should not expect the Fund’s Board of Trustees to authorize, repurchase offers in excess of 5% of outstanding shares.
- Regardless of how the Fund performs, an investor may not be able to sell or otherwise liquidate his, her or its shares whenever such investor would prefer and, except to the extent permitted under the quarterly repurchase offer, will be unable to reduce the shareholder’s exposure on any market downturn.
Liquid Strategies LLC (“Liquid”) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Liquid, including our investment strategies, fees and objectives, can be found in our Form ADV Part 2A and our Form CRS.
Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other important information about the Fund, please visit the Documents section of www.LSfunds.com/NAGRX 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.
