LJM Preservation and Growth Fund Has Experienced Losses

As Reported by Barrons: On Monday, Feb. 5, 2018, the $772 million LJM Preservation and Growth Fund’s share price plummeted from $9.67 to $4.27—a 55.8% decline. To make matters worse, the fund (ticker: LJMAX) didn’t report the loss until late the following day, so shareholders were in the dark as to what happened. And then the fund suffered another, 54.6% fall to $1.94 a share on Feb. 6—a two-day total decline of 80%. “It may be the biggest two-day drop for a mutual fund ever,” says Gretchen Rupp, a Morningstar analyst who covers the fund.

“The fund sold naked put options on S&P 500 futures,” says Rupp. “It was leveraged and had above-average margin [borrowing] levels.” A put option is a contract that allows its buyer to sell a security at a specified price, the strike price. This allows the buyer to hedge a position or an entire portfolio; if the price of the security falls below a certain level, the option buyer will at least make money on the option. When an institution “writes” or sells a put option to a buyer, the seller is betting that the price will stay higher than the option price. When the seller doesn’t own the actual securities on which it is writing options, that is called “naked” option writing, and it amplifies downside risk.

LJM Preservation and Growth Fund Investigation Summary

LJM Preservation and Growth Fund Investigation Summary

1. The LJM Preservation and Growth Fund (the LJM Fund) was launched in January 2013.  It offered three different share classes (ticker symbols LJMAX, LJMCX, LJMIX).

2. As of October 31, 2017, the LJM Fund had net assets of $768 million.

3. The fund placed massive bets using complicated options strategies that depended on the market remaining calm and not experiencing volatility.

4. LJM Fund’s prospectus states that the objective of the fund is “capital appreciation and capital preservation with low correlation to the broader U.S. equity market”. It appears to be in direct conflict with the investment strategies that were executed.

5. In two days, February 5 and 6 2018, investors in LJM Preservation and Growth Fund lost 80% of the value of their investment or perhaps $600 million in investor money.

LJM Preservation and Growth Fund (LJMAX, LJMCX, LJMIX) is a high-risk, alternative mutual fund that suffered from the VIX [volatility index] spike.

According to sources, many investors have reportedly bought into LJM Preservation and Growth Fund on the recommendation of an investment advisor who, in turn, employed supposed third-party tactical mutual fund allocation through a “sleeves” strategy.  The “sleeves” strategy has reportedly been espoused by Horter Investment Management (“Horter”) and marketed to approximately 250 investment advisor representatives.  About 210 RIA firms have reportedly established relationships with Horter.  Headquartered in Cincinnati, OH, Horter is a SEC Registered Investment Adviser (“RIA”) formed in 1991 with a stated goal of “risk mitigation, capital preservation and minimizing drawdowns so that people don’t get hurt with severe corrections or a bear market.”   Horter reportedly offers services as a third-party advisor to other investment advisers.

You May Recover Losses in LJM Preservation and Growth Fund through FINRA Arbitration

We believe that investors who have sustained losses in LJM Preservation and Growth Fund may be able to recover their losses through a FINRA arbitration claim. If you lost money in the Yield Enhancement Strategy you should seek the advice of a lawyer who has experience representing investors in investment fraud and broker negligence cases to discuss their rights.

At Goodman & Nekvasil we work on a contingency basis for every one of our clients. No recovery = no fees or costs means that, as our client, you owe us nothing unless we obtain a recovery on your behalf. Attorney’s fees are only collected if you receive a recovery, and the same is true for costs. We bear the costs of your case throughout the process, only receiving compensation if you recover some of your losses. If you don’t win a recovery, we don’t get paid. We have established a fee structure that not only represents the faith we have in our clients’ cases but also motivates our firm truly to work in your best interest. We have aligned our goals with our clients’ goals, and it allows us aggressively to pursue recoveries with all of our resources. We are devoted to achieving the best outcomes for every one of our clients.