Recent Changes to Stone Ridge Funds

Brandon Yee, Research Analyst

 

In response to an evolving catastrophe bond market, Stone Ridge Asset Management recently closed the Stone Ridge Reinsurance Risk Premium Fund (SREIX) and the Stone Ridge High Yield Reinsurance Risk Premium Fund (SHRIX) to new money. They will merge the two reinsurance funds together on December 5th of this year. The surviving fund will keep the SHRIX symbol and the High Yield Reinsurance Risk Premium fund name. When the funds are merged, SREIX shareholders will receive an equal dollar amount of SHRIX shares. The process is expected to be a tax-free reorganization and does not require any action on your part.

Originally, SREIX invested in a broader part of the catastrophe bond market, while SHRIX only invested in the highest yielding bonds. Over time, yields have slowly compressed due to the lack of severe weather events and an increased issuance of bonds that cover diversifying perils with lower probabilities of occurrence. Additionally, the number of catastrophe bonds outstanding has leveled off, while issuance has noticeably slowed, which also lowers the capacity of the funds. As a result, the portfolios of the two funds began to overlap more and more. In 2013, the percent of bonds qualified for SREIX’s portfolio, and not SHRIX’s portfolio, was 36 percent. In 2015, that number dropped to 16 percent.

As fiduciaries that value great stewards of capital, Versant Capital Management considers Stone Ridge’s actions to be notable. Instead of continuing to accept new money, they decided it was in the best interests of their investors to protect them and fund performance. Determining optimal investment strategy capacity is imperative for any fund manager, and Stone Ridge was proactive in this regard. The merging of the two funds will also serve to create economies of scale that can be passed on to investors.

Changes to investments and strategies naturally occur over time, and we will always adapt accordingly. If you have any questions or concerns regarding these changes, please reach out to us. Versant’s experienced wealth counselors and Chief Investment Officer are always available at your request.

 

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