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Commentary, the Market Continues to Be Characterized by · the Strategy Invests Primarily in a Divergences

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Commentary, the Market Continues to Be Characterized by · the Strategy Invests Primarily in a Divergences Salient Tactical Growth Sub-Advised by Broadmark Asset Management LLC September 2021 Market Update In August, the rapid spread of the Delta variant of the coronavirus led to increased investor Strategy Overview concerns over the potential for global supply chain problems and a more pronounced Salient Tactical Growth is designed to slowdown in U.S. and global growth. Asian markets weakened in August as Chinese help investors sidestep market authorities targeted a wide range of firms and industries (in addition to tech companies) downturns, while participating in its with new regulations. Hong Kong’s Hang Seng Index was down more than -20% from its growth via the continuous and active 1 management of portfolio market most recent peak before rebounding at the end of the month. Also weighing on investor’s exposure. The strategy seeks to minds were the deadly attacks at the Kabul airport and the potential repercussions of a manage risk and enhance alpha with more chaotic withdrawal from Afghanistan than anyone had anticipated. the flexibility to be long, short or neutral on the market. Despite these concerns, the S&P 500 Index, Dow Jones Industrial Average and NASDAQ-100 2 · The strategy is designed as a core Index all recorded all-time highs in August, the seventh consecutive month of gains. This investment for those who worry market strength was bolstered by Federal Reserve (Fed) Chair Jerome Powell’s remarks at about losing money in equity market the Fed’s annual Jackson Hole meeting. Powell said that the Fed would likely begin to taper downturns but also want to its asset purchases in the future but is not in a hurry to do so and would give the markets participate in the market’s upside. Using active market exposure plenty of notice. Interest rates remained stable after his comments but showed a slight rise management, the strategy moves in for the month. Credit spreads widened in August but are still narrow by historical and out of the market incrementally standards. based upon macro and technical factors. As we noted in last month’s commentary, the market continues to be characterized by · The strategy invests primarily in a divergences. The broad list of stocks has lagged the major market indices. There was some diversified portfolio of exchange- improvement in August as breadth became more positive but still only a little more than 60% traded funds (ETFs) and instruments of all stocks ended the month above their 10-week moving averages.3 If this divergence providing exposure to indices, between the large cap indices and the broad list of stocks continues, it could be the sectors and industries based on its four-pillar process. warning sign that often occurs prior to market corrections, although the timing of any market correction is always uncertain. · Proprietary Volume/Breadth-Based Momentum models are used to Investor sentiment was mixed in August. Short-term sentiment improved significantly with determine optimal stock market daily sentiment showing the most pessimism (positive from a contrary point of view) in a exposure including entry points, the amount of exposure, the type of year. This is likely due to the reversal of the “reopening-of-the-economy” trade in which exposure and exit points. cyclical stocks that benefited from the economy reopening have declined while tech and growth stocks have strengthened. But longer-term investor sentiment is still quite negative Portfolio Management (i.e., investors are overly bullish). Christopher J. Guptill CEO and CIO The investment team raised market exposure modestly in August by adding a position in 42 Years Experience financials due to increased relative strength in that sector. At month-end, the investment team had exposure to large cap stocks, technology, consumer staples and financials. The Sub-Advisor team would lower market exposure if interest rates were to rise once again or if the team’s Broadmark Asset Management LLC volume and breadth momentum models turned more negative, exacerbating the divergences between the major market averages and the broad list of stocks. The team Benchmarks would raise market exposure if investor sentiment remained pessimistic, interest rates and HFRX Equity Hedge Index credit spreads remained stable, and if the team’s volume and breadth models improved. S&P 500 Index Our assessment of the four pillars of our investment process is as follows: 1. Valuation: The S&P 500 median price-earnings ratio has declined in the last month due to very strong earnings. But equities are still in overvaluation territory with the real generally accepted accounting principles (GAAP) earnings yield on the S&P 500 at its lowest level since the series began in 1967 (Figure 1). Historically, when the real earnings yield has been this low, the average return on the S&P 500 has been -10.6%. 2. Monetary factors and credit conditions: Interest rates rose slightly in August. The 10- year U.S. Treasury Note closed the month with a 1.30% yield, up from 1.20% at the beginning of the month.4 The maxim “Don’t fight the Fed” has been a good guide since the start of the bull market over a year ago and the monetary and credit environment continues to be a positive for the financial markets. We would note, however, that Fed officials have indicated that they will slow their bond-buying program in the near future. The team will be keeping a close eye on interest rates and credit spreads. A rise in rates or a widening of spreads would be negative. Credit spreads have widened a bit in recent months, but they remain historically narrow at current levels (Figure 2). Past performance is not indicative of future results. Short-term performance is not necessarily indicative of long-term performance. It is not possible to invest directly in an index. Salient Tactical Growth Sub-Advised by Broadmark Asset Management LLC 3. Sentiment: Investor sentiment presents a mixed picture. Daily investor sentiment has improved in recent months, reflecting the market’s volatility and the reversal of the “reopening” trade. The Ned Davis Research Daily Trading Sentiment Composite reached its highest level of pessimism (positive from a contrary point of view) in a year (Figure 3), which is a positive development. Longer-term measures of investor sentiment remain negative, however. The weekly NDR Crowd Sentiment Poll is in negative territory and investors hold a historically low level of cash relative to their stock holdings. The percentage of money market cash relative to stocks is now lower than it was during the market peaks of 2000 and 2007 (Figure 4). The low point in cash reserves was reached in 2008 at 9.06% and now stands at 9.40%. 4. Momentum: Divergences between the major market averages and the broad list of stocks continued in August. While the S&P 500 hit a new all-time high during the month, only 60.8% of all stocks are above their 10-week moving averages (Figure 5). This type of divergence, if it persists, usually indicates the possibility of some type of stock market correction. 1. Bloomberg, August 31, 2021 2. Bloomberg, August 31, 2021 3. Ned Davis Research, August 31, 2021 4. U.S. Department of the Treasury, August 31, 2021 Figure 1. Sources: Ned Davis Research (NDR), S&P Dow Jones Indices, Standard & Poor’s, Bureau of Labor Statistics. Weekly data 02/18/1966 to 08/27/2021 (log scale). Past performance does not guarantee future results. For illustrative purposes only. Past performance is not indicative of future results. Short-term performance is not necessarily indicative of long-term performance. It is not possible to invest directly in an index. Salient Tactical Growth Sub-Advised by Broadmark Asset Management LLC Figure 2. Sources: Ned Davis Research (NDR), Bloomberg Barclays Indices, Federal Reserve Board. Daily data 01/03/2000 to 08/31/2021. Past performance does not guarantee future results. For illustrative purposes only. Figure 3. Sources: Ned Davis Research (NDR), S&P Dow Jones Indices. Daily data 01/03/2006 to 08/31/2021. Past performance does not guarantee future results. For illustrative purposes only. Salient Tactical Growth Sub-Advised by Broadmark Asset Management LLC Figure 4. Upper/lower brackets are a constant percentage above/below the linear regression trendline. Sources: Ned Davis Research (NDR), Investment Company Institute. Monthly data 10/31/1980 to 08/31/2021. Past performance does not guarantee future results. For illustrative purposes only. Figure 5. For Both Indicators: Upper and Low Modes = Bullish Middle Modes = Bearish Signal only changes when both indicators confirm. Sources: Ned Davis Research (NDR), S&P Dow Jones Indices. Weekly data 07/02/1981 to 08/27/2021. Past performance does not guarantee future results. For illustrative purposes only. Salient Tactical Growth Sub-Advised by Broadmark Asset Management LLC You should consider the investment objectives, risks, charges and expenses of any mutual fund carefully before investing. The prospectus contains this and other information and is available, along with information about the series of funds under the Forward Funds trust (“Salient Funds”), by downloading one from www.salientfunds.com or calling 800-999-6809. The prospectus should be read carefully before investing. The series of funds under the Forward Funds trust (“Salient Funds”) are distributed by Forward Securities, LLC. Forward Management, LLC d/b/a Salient is the investment advisor to the Salient Funds. Salient Tactical Growth Fund’s investment objective is to produce above-average, risk-adjusted returns, in any market environment, while exhibiting less downside volatility than the S&P 500 Index. RISKS There are risks involved with investing, including loss of principal. Past performance does not guarantee future results, share prices will fluctuate and you may have a gain or loss when you redeem shares.
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