2nd Quarter 2026: Episode 9

James McFarland: Hello and welcome to the special Q2 Review video edition of The Long and the Short of It. I’m your host, James McFarland, joined as always by Charles Scavone and Chris Perras. The three of us represent the portfolio management team for the Mutual Fund OHFGX, the Oak Harvest Long Short Hedged Equity Mutual Fund. What a name, what a monster of a name. And the long and the short of it, this show, typically it’s a monthly written release that we put on our website each month.

But for the quarter, we like to come together in the room and have a discussion about what’s happened over the whole quarter. Talk about the major themes, our major actions, what we were thinking heading into the quarter, what we were doing, and how things played out. So we’d like to thank you for joining us. And with that, we’re gonna jump right into it. And I’m gonna look over to Chris Paris and ask looking back at Q2, what were the things we were thinking about as we kind of led into the quarter?

Chris Perras: Thanks, James. So, yeah, so headed into the year, our outlook was that in some years it’s tough being a bull rider, and that actually played out in the first half. Particularly in the first quarter, the market actually dropped almost exactly 10% into the end of the first quarter, end of March, due to the bombings in Iran and escalation in the Middle East.

But that said, entering the second quarter, the team here thought, we were thinking positively because the market was oversold, sentiment was negative, valuations had come down, and what we were hearing kind of from our channel checks and stuff was that earnings were gonna be pretty good to better than expected for the companies that we follow. And we were increasingly positive.

James McFarland: Right, positive heading into the second quarter. Yes. Okay. And so based off of that then, you know, we’re thinking positively so we head into Q2 and that always we always try to tie our ideas into actions. So how did we take action based on what we were thinking at the time?

Charles Scavone: Yeah, good question, James. Is in doing by doing what we always do is we’re headed into this quarterly earnings reporting season. And just to piggyback off of what Chris was talking about, we try and do a very thorough job of assessing what it is we own, the names we own, the themes we’re following, followed up by really good examination of what our analyst earnings estimates doing, which of these companies meet our criteria, our sales, margins, return on invested capital criteria most strongly.

And we do that. Our other colleague on the fund, Dwayne Bachok, has built wonderful Tableau dashboards that allow us to go through and really sift through our holdings, identify the themes we’re playing, where our bets lie, what direct actions we’re taking, how we’re positioned, and make sure that we’re very comfortable with that.

And then we’ll spend the rest of the time analyzing the earnings and the outlooks that are reported and making sure that, you know, those themes that were embedded in our portfolio, that the financials follow through, the outlooks follow through. And it’s still the same ones really that were there in the first quarter, which is the AI build-out and the enablers of the AI build-out, industrial power generation, some of it, a lot of it to support AI, but overall industrial activity in the country.

And the other one that’s coming to fore more and more, I think some folks refer to it as physical AI, but it’s robotics. And that’s an emerging theme that we’re seeing and making sure that we’re paying attention to what’s going on there. So that’s really—and so we’ve followed the earnings and made sure that we were invested in the companies that we thought provided the greatest upside.

James McFarland: Right, and that’s how things play out for the long part of our book when we’re looking to buy companies because we think their stock price is gonna go up. But we also have the short side, which is where we sell companies whose price we think is gonna go down to try to profit in that way. What were we thinking on the short side of things?

Charles Scavone: Yeah, well that’s a really great question in a time like this where the market saw a very sharp rebound as this risk sentiment improved materially, has the function of sort of the rising tide lifts all ships. And particularly stocks that had gone down considerably during the first quarter of the year, towards the tail end of the first quarter of the year, many of these stocks were heavily shorted or a number of them were.

And so as sentiment shifts, it requires us to be more tactical in what we do. So although we’re very much fundamentally driven on the short side, we will make tactical decisions and lighten up on a lot of these positions, cover some of our short book, book those profits, but maintain—didn’t make any material changes in the types of names that we own, just try to make good portfolio-level decisions.

James McFarland: At the tactical level. Thematically, what are we thinking for shorts? What are the general areas we’re looking at or what we’re looking at through Q2 for a short?

Charles Scavone: Yeah, another good question. It has probably become a little bit less thematic and more stock specific, I would say, on the short side. So we’ll have short positions in retail, as a for instance, or where we see companies that are, you know, definitely impaired, competitively disadvantaged, high debt loads, poor product offering. Some of that for retail is, for instance, retailer—for instance.

These will get caught also in some of our forensic accounting screens where for a retailer we’ll see their inventory levels rising considerably faster than their sales. And that’s just a big red flag. We do a lot of that on the quantitative side.

James McFarland: That’s generally a bad thing if a company has a whole lot of inventory and they keep getting more inventory but their sales are not also increasing. Yeah, that’s a bad combination of things.

Charles Scavone: That’s a bad problem, yeah. So that’s a pretty good example. But we have short positions. We’re actually starting to even look at short positions in some of the AI-related names where fundamentals might not necessarily support or justify what’s going on. That world changes so fast and things change so fast that for every winner there’s a loser, and we try and identify where we can both sides of that trade.

James McFarland: Right. And the last leg of what we do with OHFGX is the risk hedging program. And it’s kinda tricky to talk about a whole quarter’s worth of hedging, but I guess can you speak a little bit to that?

Charles Scavone: Yeah, yeah, and this quarter is another good example of how it can be difficult, how it had perhaps helped so much in the first quarter, but in the second quarter, as we saw this risk sentiment shift dramatically, we saw the markets start to rise. But then options—the way that we hedge is with a basket of index options—and a large component of the cost of that is implied volatility. How expensive is it to hedge?

Well, hedging costs had gotten incredibly expensive as the escalation had increased and the geopolitical escalation had increased. And once that begins to lift, the value of your hedges declines rapidly because the cost of hedging actually goes down, but what you own currently also decreases in value. So it’s a little bit of the double whammy there.

What we did is we shifted a little bit away from using options-only strategies into using ETFs. They’re referred to as one delta ETFs that don’t have that same financial characteristic that happens—that the value of them changes by implied volatility changes. That was helpful for us.

But even though risk sentiment was improving, geopolitical risk remained and we were held to our directive of running a long short hedged equity product by maintaining what we refer to as tail risk hedges just in case something bad happened. Nothing bad happened. There’s no such thing as a free lunch, and the cost of those hedges was a material detriment to the fund’s overall return. Over time we can live with that. You know, over time our experience is that it pays off, it pays dividends over time over the market cycle.

James McFarland: Okay, very good. Thank you very much. And so with all that said, you know, we’ve taken a look at the actions we were taking during Q2. We look back at the whole thing. How did things play out?

Chris Perras: Thanks. Yeah. Charles mentioned it. I mean, there was essentially a light switch that went off right at the beginning of the second quarter where risk sentiment went from off and everyone was worried about the war in the Middle East to, “I gotta get invested and I gotta buy growth stocks.”

Particularly, I think people came back from the first quarter and saw this agentic AI moment in technology stocks. So there was what we call a V bottom in the market. And really unless you were already kind of invested, the market didn’t give you much of a chance to get along.

James McFarland: V bottom means, right? That V bottom—stocks go down like that and they go up just the same way.

Chris Perras: Go straight up, and to the point that it wasn’t unprecedented but it was rare. The S&P 500 rallied over 20% in nine straight weeks without a down week. It was led by technology, led by semiconductors, a lot of areas that we’re exposed to, which is fun on the way up. It’s not so much fun when things kind of peak out and roll over, which is kind of what happened later on in June.

But for the entire quarter the S&P 500 was up over 15%, led by the Nasdaq, led by semiconductors, artificial intelligence, which the fund has a fair amount of exposure to. The only negative sector I think was energy, which you’d expect because oil fell from 110 to 70, something like that.

James McFarland: This is not directly related to what we do in OHXX, but since you did bring up oil there, I think a lot of people might have expected the price of oil to skyrocket based off of Iran, and yet, as you say, it did not do that. Any thoughts on what was behind that?

Chris Perras: It did skyrocket initially, right? I think it was $65 a barrel sometime in the beginning of the first quarter, and it went to 115, 120 for a couple days. But yeah, there were estimates that it was going to 200, and that was essentially the peak in oil.

You know, America is energy independent. We can pump a lot of oil. There are a lot of other areas in the world that could pump. You know, Venezuela, a lot of OPEC kind of seems to be falling apart now a little bit.

So the actual barrels of oil that weren’t refined, the way the market was structured, hedgers came in and said oil’s gonna be back below 80, you know, in the second half of the year, and it dropped pretty quickly below 80 in the second quarter.

James McFarland: Yep. Yeah, very interesting. Okay. So anything else to comment on regarding Q2 as a whole before we kind of wrap up?

Chris Perras: Yeah, well, so after that nine-week rally in the S&P 500, the market essentially went—pulled back a little bit, flat. A lot of the technology names that kind of led that nine-week charge did give back some of their gains there at the end of June, did hurt performance a little bit there at the end of the quarter.

James McFarland: Gotcha, gotcha. All right. Okay, well, thank you very much. Thank you very much, Chris. Thank you very much, Charles. And thank you for joining us for this special video edition of The Long and the Short of It.

We will continue to release our written pieces each month. You can find those on our website, www.oakharvestfunds.com. You can also find more information on OHFGX on the website, how to invest with us, more information on the strategy we use, and more about us as individuals and people and a team.

And if you want performance-related information, you can check out Morningstar. You can find a lot of good stuff there. Thank you once again for joining us, and we’ll see you in the next video.

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Investors should consider the investment objectives, risks, and charges and expenses of the Fund before investing. The prospectus contains this and other information about the Fund and should be read carefully before investing. The prospectus can be found by visiting our website at oakharvestfunds.com, or may be obtained by calling 833-549-4121. The content contained therein is informational purposes only. This information is not intended to provide tax or legal advice or personalized investment advice, nor is it an offer or solicitation to buy or sell securities. Views and opinions may change based on new information or analysis. Oak Harvest makes no assurance as to the accuracy of any forecast made. Figures, references, and data cited in all written and audio content are obtained from sources believed to be reliable, but we do not guarantee timeliness or accuracy of this information. All investments involve risks, and we cannot guarantee any investment will achieve its objective. Investment in the Fund is not guaranteed by any government agency. You may lose money by investing in the Fund. Investing involves the risk of loss, and some strategies may not be right for you. Past performance does not guarantee future return. Please refer to the Fund prospectus for these and other important risks. NOT FDIC INSURED – MAY LOSE VALUE – NO BANK GUARANTEE This information is intended for US residents. The information in this video does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. Advisory services are provided through Oak Harvest Investment Services, LLC, a registered investment adviser. Oak Harvest is not affiliated with Ultimus Fund Distributors, LLC.

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