Fundamental Disconnect: Understanding Fundamentals
October 17, 2013
The 24/7 financial news cycle and rise of social media creates vast opportunities for investors to research the companies in which they place their assets. However, this information that is supposed to help investors make more rational choices too often leads to emotionally driven investment decisions that can impact the market as a whole.
In a perfect world, stock prices would be a reflection of a company’s performance, measured by real drivers like earnings, dividends and cash flow. But this is rarely how the stock market functions. Instead investors see a harrowing headline, make an impulse buy or sell decision, and contribute to a market that behaves in unpredictable and often irrational ways.
Flash crashes, errant tweets, high frequency trading and technology glitches at the exchanges have all been the impetus behind dramatic market swings, which result from millions of investors basing their day-by-day investment decisions not on a clear view of corporate performance, but on fear, hype and headlines. Once considered anomalies, these psychologically driven market events have become daily occurrences.
In the end, all this headline risk translates into unnecessary volatility for investors and their portfolios. One need only look at the performance of real corporate growth measures since 2000 to observe the disconnect between actual corporate performance and the value the market assigns to those companies. While stock prices grew nearly 30% in this timeframe, dividends and earnings trumped price returns by more than three times (Source: FactSet, Reality Shares Research).
Corporate performance is being overshadowed, if not outright ignored, by market forces that have little to do with the real performance of a company. It’s time for an investment vehicle that addresses this fundamental disconnect and allows the investor to participate in the fundamental success of a company directly, independent of the valuation the market places on that company.
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Investments in options, swaps, forward contracts and futures contracts are subject to a number of risks, including correlation risk, interest rate risk, market risk, leverage risk, and liquidity risk. Each of these risks could cause the Fund to vary from its stated objective, could cause the Fund to lose money and may have a negative impact on the value of your investment. Please refer to the Fund Risks for further explanation of individual risks.
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Reality Shares Advisors, LLC is the Investment Advisor. ALPS Distributors, Inc. is the Distributor for the Fund. Reality Shares Advisors, LLC and ALPS Distributors, Inc. are not affiliated.
The Fund is newly organized and the Adviser has not previously managed an ETF registered under the 1940 Act.
Shares of the Fund are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market Price is based on the midpoint of the bid/ask spread at 4:15pm ET on business days and does not represent the returns an investor would receive if shares were traded at other times.