RiverNorth Patriot ETF (FLDZ) Commentary - Q2 2022
The RiverNorth Patriot ETF (NYSE: FLDZ) launched January 3rd of this year and is designed to deliver true impact investing to shareholders. The majority of advisory fees and all profits from managing the Fund support Folds of Honor: a charity that provides educational scholarships for the families of America’s military and first responders. Since 2007, Folds of Honor has awarded more than 35,000 scholarships, with 91% of each dollar donated going to these scholarships.
Along with the goal of supporting Folds of Honor, we seek to give our investors exposure to core mid- and large-cap equity with a focus on American businesses that primarily operate within our borders. In our view, FLDZ brings value to those we serve in two ways: the potential to grow one’s capital through an investment in America and provide a regular source of income to a worthy charity that supports American values.
To align the portfolio with our goal of helping those who’ve fought for our country, we invest exclusively in companies that generate at least 90% of their revenues within the United States and are principally traded and domiciled here. To focus on the subset of more developed and liquid American companies, we also exclude any that have a market capitalization of less than $5 Billion at the time of selection.
As a result of the Fund’s mandate, there are some portfolio statistics worth noting. First, the Fund maintains a 99.7% geographic revenue exposure to the United States versus an estimated 60.8% for the S&P 900 – an active exposure of 38.8%. Second, the Fund’s weighting to the Technology sector is about 1.9% versus 28.4% for the benchmark. The allocation in the Fund away from Technology and into other sectors is primarily a result of the large companies within this sector who have relatively low revenue exposure to the United States. This is demonstrated below by looking to the geographic revenue exposure of the top 10 constituents of the S&P 900 index, where Technology sector firms are highlighted:
In the second quarter, broad market volatility remained elevated as the intersection of numerous macro headwinds, including geopolitical conflict in Eastern Europe, tightening monetary policy conditions, and unabating inflation, continued to drive headlines. In line with these observations, equity markets were down significantly as the S&P 900 realized a -16.06% total return for the quarter, where FLDZ experienced a better but still negative NAV total return of -13.94%.
Looking to relative portfolio composition and its impact on performance for the quarter, FLDZ’s low Technology sector exposure and commensurately higher exposures to Utilities and Energy sectors were positive contributors versus the S&P 900. On the other hand, exposures to Consumer Services and Healthcare sectors were net detractors versus the S&P 900. It is important to note that these relative sector allocations are not made with the goal of achieving alpha but are simply a result of the Fund’s mandate.
Below are some portfolio statistics and the top 5 contributors to and detractors from FLDZ’s 2Q 2022 performance:
We look forward to our future together as America continues to be a beacon of economic prosperity and liberty. Thank you for your support of our endeavor to give back to military families and add value to your portfolio.