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LJM Funds

What Happened to the LJM Preservation and Growth Fund?

While LJM was marketed as a way to preserve capital, and diversify your portfolio, because it engaged in extremely risky strategies, it lost more than half a billion dollars when the markets experienced volatility in February, 2018.

How can I Recover the Money My Advisor Told Me to Invest in LJM Funds?

Since LJM Funds have little value and have settled class actions, there will be small recoveries from the state and federal class action settlements. However, the investment advisor or brokerage firm that recommended your purchase of LJM Funds may also be liable to you for their failure to know that LJM was probably an unsuitable recommendation for you and/or your retirement account.

How long do I have to make a claim for the improper recommendation of the LJM Funds?

Under the customer arbitration rules, claims can be presented for up to six years from when the claim arises. However, there are other time limitations that may be shorter, so please contact our office for a free confidential claim evaluation. Call us toll-free at (800) 637-3243.

The LJM Fund Implosion

Feb. 5th and 6th 2018 were dark days for investors in LJM Preservation and Growth Fund. The LJM Preservation and Growth Fund (LJMIX) plummeted over 80% (from a price of $10.34 to $1.94) in two days. Nothing ‘preserved’ investors from the funds complete devastation, from which it is unlikely to recover. The cause of the collapse was fairly simple: LJM was betting against volatility through a strategy known as ‘shorting volatility’. Unfortunately, the volatility index (VIX) experienced one of the largest spikes in history which is what sent LJM spiraling. LJM Fund’s prospectus which states that the objective of the fund is “capital appreciation and capital preservation with low correlation to the broader U.S. equity market” appears to be in direct conflict with the investment strategies that were executed. Quite simply, the fund should never have been marketed to investors as a tool for capital “preservation”.

Not surprisingly, LJM had suffered similar high-double digit losses during volatility spikes in the past – most notably during the 2008 financial crisis. The fund suffered a -43% drop in July/August 2011, showing a distinct dislike for volatility spikes. This can be seen in its skewness which reflects that the returns of LJM’s program tended to have more negative outliers than what would be expected from their monthly returns, and that those outliers were much larger than would be expected.

The main problem was that LJM wasn’t just short the market, it was also short two heavily interrelated themes: a) the time is would take for the market to fall, essentially betting that if it did fail, it would fall somewhat orderly, and b) it was short the veracity of the fall, essentially betting there wouldn’t be a panic where people –perceived a down move as the beginning of the end for the stock market.

But because banks and brokers clearing the fund’s business don’t want to be on the hook so they protect themselves with margin requirements. They require that funds put on hedging trades or liquidate positions. It’s that forced liquidation which cemented the losses in place, likely causing even bigger losses as other traders realized what was happening and made it more expensive for them to cover positions, and their own exiting trades pushed prices more and more against them. As is often the case, it was the forced liquidation due to margin calls which took away the funds’ ability to only lose a leg as the freight train bore down on them, instead of their whole body/life.

If you have lost money in the LJM Fund or another Inverse Volatility Fund, call securities fraud Attorney Howard M. Rosenfield, for a confidential free claim analysis. Call him at (800) 637-3243 or send an email to howardrosenfield@stockbrokerproblems.com.

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