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KCM MACRO TRENDS FUND
Actively Managed Liquid Alternatives
May 2017
TABLE OF CONTENTS
Kerns Capital Management
Section
Overview
3
Opportunity Set
4
Investment Strategy
5
Our Edge
7
Investment Process
8
How We Manage Risk
11
The Team
12
Performance
14
Summary Terms & Contact Information
16
2
OVERVIEW
Actively Managed Liquid Alternatives
Who We Are
 Kerns Capital Management: Houston, TX-based SEC Registered Investment Adviser
founded in 1996, specializing in active management of liquid portfolios.
– Adviser to liquid alternatives mutual fund and several separately-managed account
strategies, $180 million firm-wide discretionary AUM as of May 1, 2017
 President & Lead Portfolio Manager, Martin L. Kerns II: AIF, JD, Series 65 Licensed, cofounder and fund manager since 2008 inception, joined the firm in 2007
 Co-Portfolio Manager, Parker Binion: 20+ years investment experience, JD, Series 65
Licensed, joined the firm in 2014
What We Do
 Apply rules-based assessment of macro trends in equity markets to determine risk level
– Use quant models to exploit market inefficiencies under favorable equity risk level;
seek returns in asset classes uncorrelated with equities when unfavorable risk level
 Implement highly scalable investment strategy with diverse, quantitative, unemotional
buy/sell discipline
– Manage risk by position size, sector exposure caps, strategy diversification and
uncorrelated assets
3
OPPORTUNITY SET
Equity Focused Investment Exposure Depends on Macro Trends
“Our disciplined top-down assessment of macro trends in equity markets
is the driving factor in shaping a flexible opportunity set.
We use quantitative models to determine perceived risk levels
and identify investment opportunities among equities and alternative assets.”
– Martin Kerns, President & Parker Binion, Chief Investment Officer
4
INVESTMENT STRATEGY
Disciplined Rules-Based Risk Assessment and Buy/Sell Implementation
 Risk Perception Drives Quantitative vs. Qualitative Strategy Implementation
– Risk-on environment (equity investing): Quantitative models drive analysis, portfolio
construction, security selection, buy/sell discipline and position sizing
– Invest across sectors, market caps and countries, seeking stocks with sound
fundamentals
– Risk-off environment (equity sell-off): Conduct qualitative analysis and seek marketneutral allocations
 Multi-asset opportunistic investing
– Top down macro strategy applies quantitative, fundamentally-based portfolio
construction
– U.S. equity-focused long/short (long bias)
 Seek long-term risk-adjusted capital growth
– Carefully manage portfolio risk guidelines and sector exposures
– Actively hedge to control volatility, preserve capital and improve returns
5
STRATEGY: SECURITY SELECTION / HEDGES
Diversified Investing + Active Hedging
Security Selection
 Diversified across sectors, market caps and countries
 Stocks with high EBITDA per Enterprise Value
 High dividend, lower volatility
 Significant sales growth
 Substantial free cash flow
 Industry leading ADRs
Active Equity Hedge
 Hedge against the most vulnerable markets (too early causes whip-saws); apply hedging
signals by shorting the index or basket of securities
 Exit as soon as possible (too late misses the rally of bottom - where many fall short)
 Quantitative rules based strategy: factoring price, momentum, breadth, volatility and
volume
 Cash, Inverse ETFs & Options
6
OUR EDGE
Scalable Process & Award-Winning Results
 Scalable process designed to capture the upside and provide downside protection
– Refinement of models and algorithms in early 2016 has resulted in market
outperformance and positioning for bear markets.*
 5-Star Overall Rating from Morningstar
• KCM Macro Trends Fund (KCMTX) ranks in the top 2% of 153 Morningstar MultiAlternative funds by Morningstar for the five year period ended 04/30/17 based on total
return. KCMTX ranks in the top 2% and top 3% for the 1 and 3 year periods out of 423 and
245 funds, respectively, with a 5 star overall rating.
* There is no guarantee that the fund’s investment objective will be achieved or maintained.
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INVESTMENT PROCESS
Implement Quantitative, Scalable & Liquid Strategy
Assess Market
Environment
Risk-on / Risk-off
Actively Monitor,
Hedge & Re-Allocate
Select Securities
Allocate Among
Strategies
Parker Binion
joined firm
Firm organized
1996
Quantify Risk
Exposures
2008
KCM Macro Trends
Fund inception
2014
2016
Quant models
refined
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INVESTMENT PROCESS: RISK-ON
Allocate Among Equity-Focused Investments
RISK-ON
MARKET PERCEPTION*
Rules-Based Macro Analysis
Quantitative Equity Strategies
Allocate 100%
SYSTEMATIC RESEARCH-BASED
Buy / Sell Rules
CONTRARIAN
Core Strategy
40-75%
20-50 of
Largest
1200 Stocks
BLUE CHIP
Core Strategy
20-25%
12-18 Dow
Industrials
ADR
Opportunistic
0-20%
DIVIDEND
Opportunistic
0-40%
SECTOR
Opportunistic
5-10%%
25-50 Liquid
ADRs
25-50 of
Largest 1200
Stocks
5-10 of
Largest 1200
Stocks
* Note: These risk-on strategies are value-oriented by nature, and are expected to work well in most
market environments. We would not use them in momentum-driven markets such as the late 1990s.
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INVESTMENT PROCESS: RISK-OFF
Pursue Market Neutral Investments Based on Qualitative Analysis
RISK-OFF
MARKET PERCEPTION
Non-Correlated Strategies
Up to 100% Market Neutral
Approx. 50% Long Stocks, 50% Short S&P
CASH
BOND ETFs
CURRENCY
ETFs
COMMODITY
ETFs
10
HOW WE MANAGE RISK
Risk Guidelines Applied to Positions, Exposures and Portfolio Weights
POSITIONS

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Generally less than 70
Maximum position size approx. 3% of aggregate portfolio
EXPOSURE

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Long: 0%-133% (with leverage)
Short: 0%-50%
Net: -10%-133% (with leverage)
Maximum Leverage: 133%
Liquidity: 70% of Holdings > $5B market cap
PORTFOLIO
WEIGHTS



Country: 80%-100% U.S. domiciled or listed
Asset Class: 0%-100%
Sector: 0%-25%
BENCHMARKS


HFRX Equity Hedge Index
Morningstar MultialternativeTM Category
This summary of risk guidelines as to positions, exposures, and portfolio weights is provided as a general overview, subject to
customization with a separately managed account.
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THE TEAM: EMERGING FUND MANAGER
Experienced Investment Professionals
Martin L. Kerns, II
President
Investment Management
Business / Operations
Martin Kerns
Chief Executive Officer
Product Development: Parker Binion
Operations: Michelle LaDoucieur
IT: Mark Ellender
Client Service / IR: Keith Johnson
Parker Binion
Chief Investment Officer
Service Providers
Fund Distributor: Northern Lights Distributors
Custodian: Fifth Third Bank
Auditor: Tait, Weller & Baker
Fund Administrator: Gemini Fund Services
Legal: Thompson Hine
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TEAM: MANAGEMENT BIOGRAPHIES
Martin L. Kerns, President, & Parker Binion, Chief Investment Officer
Martin L. Kerns, II (joined Kerns Capital in 2007)
President, Chief Executive Officer & Chief Compliance Officer
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Fund Co-Founder & Lead Portfolio Manager, KCM Macro Trends Fund
Purchased KCM in 2012
Board Member, Guggenheim/Rydex Dynamic Advisory Board
Former Board Member, National Association of Active Investment Managers
Accredited Investment Fiduciary (AIF®), Center for Fiduciary Studies
B.A. Finance, University of Texas - Austin; J.D. South Texas College of Law
Parker Binion (joined Kerns Capital in 2014)
Chief Investment Officer



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Co-Portfolio Manager, KCM Macro Trends Fund
Manages KCM’s SMA Strategies
20+ years experience in fundamental and technical analysis, including portfolio management since 2012
Developed quantitative models implemented by KCM Macro Trends Fund in 2016
B.A. Duke University; J.D. with Honors, University of Texas – Austin
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FUND PERFORMANCE (8/4/08 INCEPTION – 4/30/17)
Significantly Outperformed Cumulative Benchmark Returns
The performance data quoted here represents past performance and is not a guarantee of future results. Performance current to
the most recent month-end may be lower or higher and can be obtained by calling 1-800-945-2125. The investment return and
principal value of an investment will fluctuate so that investor’s shares, when redeemed, may be worth more or less than their original
cost. The Fund’s total annual operating expense ratio is 1.71%. The indices and categories shown are for informational purposes only
and are not reflective of any investment. As it is not possible to invest in the indices or category, the data shown does not reflect or
compare features of an actual investment, such as its objectives, costs and expenses, liquidity, safety, guarantees or insurance,
fluctuation of principal or return, or tax features. The HFRX Equity Hedge Index (“HFRX”) is reflected as a benchmark for equity hedge
strategies. Source: https://www.hedgefundresearch.com/family-indices/hfrx
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FUND PERFORMANCE STATISTICS (AS OF 4/30/17)
Exceeding Benchmarks For Trailing 60 Months
KCMTX vs. HFRX
Correlation
0.81
Alpha Annualized
3.5%
Beta
1.59
The performance data quoted here represents past performance and is not a guarantee of future results. Performance current to
the most recent month-end may be lower or higher and can be obtained by calling 1-800-945-2125. The investment return and
principal value of an investment will fluctuate so that investor’s shares, when redeemed, may be worth more or less than their original
cost. The Fund’s total annual operating expense ratio is 1.71%. The indices and categories shown are for informational purposes only
and are not reflective of any investment. As it is not possible to invest in the indices or category, the data shown does not reflect or
compare features of an actual investment, such as its objectives, costs and expenses, liquidity, safety, guarantees or insurance,
fluctuation of principal or return, or tax features. The HFRX Equity Hedge Index (“HFRX”) is reflected as a benchmark for equity hedge
strategies. Source: https://www.hedgefundresearch.com/family-indices/hfrx
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SUMMARY TERMS & INVESTOR RELATIONS
Contact us for Further Information or to Arrange a Meeting
KCM Macro Trends Fund
KCMTX
Investment Adviser
KCMIX
Separate Account
Kerns Capital Management, Inc.
Inception
Aug. 4, 2008
March 20, 2017
Available
Minimum Initial Subscription
$5,000
$250,000
$500,000
Liquidity
Daily
Daily
Daily
Sales & Redemption Fees (p.a.)
None
None
None
Management / Performance Fees
1.0% / 0%
1.0% / 0%
0% / 30%
Operating Expenses (max. p.a.)
1.71%
1.46%
N/A
The information presented is for informational purposes only. This summary is not complete and is qualified in its entirety by
reference to the more detailed discussion contained in the Fund Prospectus.
Our investor communication includes thought leadership commentary, white papers, a
monthly newsletter and access to full transparency. Visit KCMTX.com or contact:
Marty Kerns, President (phone 800.945.2125 ext. 107)
Kerns Capital Management
9821 Katy Freeway, Suite 400
Houston, TX 77024
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DEFINITIONS
Long: The buying of a security such as a stock, commodity or currency with the expectation that the asset will rise in value.
Short: Any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume they will be able to buy the
stock at a lower amount that the price at which they sold short.
Long/short (long-bias): is an investing strategy of taking long positions in stocks that are expected to appreciate and short positions in
stocks that are expected to decline. A long/short equity strategy seeks to minimize market exposure, while profiting from stock gains in
the long positions and price declines in the short positions. A long-bias fund maintains a differing ratio of long positions (compared to
short positions) that usually exceeds 40%, in order to benefit during rising markets.
Whipsaw: A condition in which a security's price heads in one direction, but is followed quickly by a movement in the opposite
direction. A trader is considered to be "whipsawed" when the price of a security he just invested in abruptly moves in the opposite
direction of what was expected.
EBITDA: Stands for earnings before interest, taxes, depreciation and amortization. EBITDA is one indicator of a company's financial
performance and is used as a proxy for the earning potential of a business. Further, EBITDA strips out the cost of debt capital and its tax
effects by adding back interest and taxes to earnings.
ADR: Stands for American depositary receipt. An ADR is a negotiable certificate issued by a U.S. bank representing a specified number
of shares (or one share) in a foreign stock traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security
held by a U.S. financial institution overseas, and holders of ADRs realize any dividends and capital gains in U.S. dollars, but dividend
payments in euros are converted to U.S. dollars, net of conversion expenses and foreign taxes.
Liquid/Market Liquidity: Market liquidity refers to the extent to which a market, such as a country's stock market or a city's real estate
market, allows assets to be bought and sold at stable prices. Cash is the most liquid asset, while real estate, fine art and collectibles are
all relatively illiquid.
Quant Fund: An investment fund that selects securities based on quantitative analysis. In a quant fund, the managers build computerbased models to determine whether an investment is attractive.
Top-Down, Macro Trends Analysis: Top-down investing is an investment approach that involves looking at the overall picture of the
economy and then breaking down the various components into finer details. After looking at the big-picture conditions around the
world, analysts examine different industrial sectors to select those that are forecast to outperform the market. From this point, they
further analyze stocks of specific companies to choose potentially successful ones as investments. Marco refers to a large scale trend.
Hedge: A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an
offsetting position in a related security, such as a futures contract.
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DISCLOSURES
Past performance is no guarantee of future results. Current performance may be lower or higher than the performance quoted. Past
performance, ratings and ranking are no guarantee of future results and are just three forms of performance measurement. There is
no guarantee that any investment will achieve its objective, generate positive returns, or avoid losses.
© Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied of
distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible
for any damages or losses arising from any use of this information. The Morningstar Multialternative TM category includes funds that
have a majority of their assets exposed to alternative strategies, including long/short strategies, and can include both funds with static
allocations to alternative strategies and funds tactically allocating among alternative strategies and asset classes.
For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted
Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and
redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of the funds in
each category received 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the
bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures
associated with its three-, five- and ten- year (if applicable) Morningstar Rating metrics. KCM was rated against the following number of
U.S. domiciled Multi-Alternative funds over the following periods ending 04.30.17: 245 funds in the last three years and 153 funds in
the last five years. With respect to these Multi-Alternative funds, KCMTX received a Morningstar Rating of 5 and 5 stars for the threeyear and five-year periods, respectively.
Mutual Funds involve risk including possible loss of principal. Investors should carefully consider the investment objectives, risks,
charges and expenses of the KCM Macro Trends Fund before investing. The Fund may invest in small, less well-known companies, which
may be subject to more erratic market movements than large-cap stocks; foreign securities, which are subject to currency fluctuations
and political uncertainty; and derivative securities, which may carry market, credit, and liquidity risks. The Fund may also engage in
short selling activities, which are more risky than "long" positions because the potential loss on a short sell is unlimited. The Fund may
use leveraging and/or hedging techniques that could fail if changes in the value of the derivative do not correlate with the securities
being hedged. These risks may result in greater share price volatility.
Investors should carefully consider the investment objectives, risk, charges and expenses of the KCM Macro Trends Fund. This and
other important information about the Fund is contained in the prospectus, which can be obtained at www.kcmtx.com or by calling
877-275-5599. The prospectus should be read carefully before investing.
The KCM Macro Trends Fund is distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. Kerns Capital Management and
Northern Lights Distributors, LLC are not affiliated.
3363-NLD-5/10/2017
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