FolioBeyond Alternative Income and Interest Rate Hedge ETF (RISR US) – Portfolio Construction Methodology

The investment strategy underpinning the actively managed FolioBeyond Alternative Income and Interest Rate Hedge ETF seeks income and positive sensitivity to rising U.S. interest rates by allocating primarily to agency mortgage-related interest-only exposures and complementary rate-hedging instruments. The investable set centers on agency RMBS IO/IO-like cash flows and TBA-related structures, complemented by U.S. Treasury futures, swaps, or options to shape duration and convexity; credit risk is minimized through agency backing while prepayment, basis, and convexity risks are actively managed. Security selection evaluates coupon, seasoning, prepayment behavior, and model-implied convexity across collateral cohorts. Portfolio construction targets negative or low effective duration with controlled convexity, diversifying across coupons and vintages; liquidity management relies on deep agency and Treasury markets. Rebalancing responds to changes in rate levels, curve shape, volatility, and realized prepayment speeds; sells discipline addresses adverse convexity shifts or diminished carry.

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