Navmont Yield Index

Eligible universe

The index is asset class agnostic on liquidity. It selects across publicly traded yield positions and illiquid tokenized private fund interests. The discipline that makes this defensible is the per position hedge rule, not a liquidity screen on the constituent itself.

Liquid constituents

BDCs, mortgage REITs, REITs, MLPs, and dividend equities. Priced continuously from market.

Illiquid constituents

Tokenized private fund interests with monthly or quarterly NAV. Eligible only when a publicly traded counterpart prices the same underlying risk in real time. Without a hedgeable counterpart, the position is not eligible.

Background

Manager selection in private funds is driven by relationships and pedigree. It is opaque, retrospective, and slow to correct. The Navmont Yield Index replaces it with a documented rule set that runs deterministically against published thresholds.

Selection screens

Private fund screen

Each tokenized private fund position must clear:

• Manager track record. Minimum vintage history, minimum net IRR, team continuity test.
• Factor exposure. Underlying must map cleanly to a publicly traded counterpart for hedging.
• Liquidity tier. Wrapper liquidity terms documented and compatible with the implementing basket's redemption flow.
• Credit quality. For private credit positions: senior secured share, lien position, and concentration limits per borrower.

Public stock screen

Public stocks (yield positions and hedge counterparts) must clear:

• Distribution covered by real cash flow. Each asset class is measured against the cash flow that actually funds its distribution, not GAAP earnings. For BDCs that is net investment income (NII), for mortgage REITs earnings available for distribution (EAD), for REITs funds from operations (FFO), for MLPs distributable cash flow (DCF).
• Volume. Average daily volume supports non disruptive entry and exit at the modeled position size.
• Hedgeable. Correlated public hedge instrument exists with adequate options liquidity.

Hedge construction

Every constituent carries a sized hedge against a publicly traded counterpart pricing the same underlying risk (Rule 02). The hedge layer is constructed continuously, independent of the quarterly constituent rebalance.

Proxy assignment

Each constituent is assigned a public market hedge instrument (sector ETF, index, or single name) where realized return correlation with the constituent exceeds the documented floor for its asset class. The proxy is reviewed each rebalance.

Sizing

Hedge notional is set to neutralize the residual public market beta of the constituent against the proxy. Residual beta target and rebalance band are documented per asset class.

Instrument

Three distinct hedge structures, one per asset class. Strike, tenor, and roll schedule documented per asset class. Annual cost budget capped per asset class.

• Mortgage REIT cluster (AGNC, NLY). Listed long put on XLF, sized to neutralize the residual public beta of the cluster against the proxy. XLF is the working proxy because REM option chains are too thin to fill at the required strike band.
• BTC-correlated preferred cluster (STRC, SATA). Listed put spread on IBIT (long 80% strike, short 60% strike, same expiry). The short leg finances the long leg and caps the protection band at a defined maximum loss.
• Broad market core (QQQM). In-house covered call on QQQM, 105% strike, monthly tenor. The call generates premium income. It is not downside protection. Systemic downside on the broad market sleeve is absorbed by the tail overlay.

Correlation breach

If realized correlation drops below the documented minimum for two consecutive review windows, the constituent fails Rule 02 and exits per the Maintenance section.

Weighting and concentration

Weights are set at each scheduled rebalance from the rule based selection output. The methodology applies three concentration caps (Rule 03):

• Per position. No single constituent above 20% of the index. QQQM carries a position-level override at 25% to accommodate the whole-contract sizing of its covered call overlay (100 shares per contract). All other constituents stay at the 20% cap.
• Per correlated cluster. No group of constituents sharing a hedge proxy above 40%.
• Per sub asset class. No single asset class (BDC, mREIT, REIT, MLP, private credit, dividend equity) above 50%.

Within those caps, weights follow the selection model output. Caps are versioned and changelogged per the Maintenance section.

Pricing and calculation

Pricing

Index value is a blend. Liquid constituents mark continuously from market. Illiquid constituents mark from issuer reported NAV with a real time adjustment derived from the assigned public hedge instrument. The adjustment captures the documented smoothing bias in private fund NAV reporting: issuers smooth losses into book value while the public proxy crystallizes them in real time.

Worked example: a tokenized private credit constituent reports NAV quarterly. Its assigned public proxy (e.g., BIZD or a leveraged loan ETF) is priced continuously. Between issuer marks, the index applies a beta-adjusted return delta from the proxy to the constituent's last reported NAV. At each issuer mark, the adjustment resets and the new reported NAV becomes the anchor. The cumulative effect: index NAV reflects realized public market stress without waiting for the next issuer reporting window.

Calculation

• Type. Total return. Includes distributions and hedge cost or payoff.
• Constituent rebalance. Quarterly. Illiquid pricing is the binding constraint.
• Hedge layer. Reevaluated continuously against real time proxy prices.

Maintenance

Calendar

• Rebalance. Quarterly, effective Apr 1, Jul 1, Oct 1, Jan 1.
• Eligibility review. Conducted in the 75 days following each quarter end.
• Hedge layer. Continuous against real time proxy prices.

Removal triggers

Two tiers govern removal:

• Routine. Holds weight to next rebalance if the trigger persists. Triggers: distribution coverage below threshold for two periods, hedge correlation below class minimum, 12-month AUM drop or senior team turnover above threshold, strategy drift in two consecutive filings.
• Force majeure. Immediate removal at next index publication. Triggers: bankruptcy, delisting, distribution suspension or cut greater than 50% on a single declaration, regulatory enforcement, material accounting restatement, loss of qualified custodian status.

Cash buffer

Mid-cycle removed weight goes to a notional cash buffer (proxied by a tokenized money market or 3-month T-bill index) until the next scheduled rebalance. It is not proportionally redistributed across remaining constituents, which would create whipsaw and incidental concentration outside the rule book.

Additions

Only at scheduled rebalances. Exception: if the index drops below 5 constituents after a force majeure removal, an emergency addition cycle is published within 10 business days drawing from the documented waitlist of next-eligible names.

Corporate actions

Distributions reinvest at ex date close. Splits adjust per share figures, weight unchanged. Cash mergers route proceeds to the cash buffer. Stock for stock mergers inherit the slot only on independent eligibility. Spin offs receive pro rata weight for the current cycle. Special distributions above 5% of position value trigger an interim NAV adjustment.

Hedge roll mechanics

• Schedule. Per asset class. Tenor floor and target tenor documented in the rule book and published with each rebalance.
• Trigger. Calendar based at the documented tenor floor, plus delta based when the option moves outside the assigned strike band.
• Cost handling. Roll cost realized into the index return on the day the roll executes. No amortization, no smoothing.
• Failed roll. If the assigned instrument has insufficient liquidity at roll time, the keeper falls back to the documented secondary proxy and logs the event. Persistent fallback for two consecutive rolls triggers a methodology review.
• Rebalance window. Hedge rolls are scheduled outside the constituent rebalance window where possible to avoid signaling to the market.

Dissemination

• Real time index value. Published continuously via the keeper dashboard during regular trading hours.
• End of day NAV. Published by 6:00 PM ET on each US trading day.
• Quarterly rule based NAV. Published within 75 calendar days post quarter end (matches the BDC 10-Q filing cycle).
• Monthly attribution. Distribution attribution by sleeve, hedge cost realized, fee tier status, and any corporate actions handled in the period.
• Data fallback. If a primary pricing source fails, the keeper falls back to the documented secondary source (alternate vendor or last validated print) and logs the event. Persistent fallback above 60 minutes triggers an incident report.
• Index history. Full historical series, including all rebalance and removal events, available via the public API.
• Vendor distribution. Index level, weights, and constituent changes provided to allowed institutional data vendors per the published license terms.

Governance

• Versioning. Methodology and maintenance documents are versioned and changelogged.
• Material changes. Published 60 days before effective date with a 30-day public comment window.
• EY oversight. Ernst & Young LLP reviews the rule set and execution annually. Material changes trigger interim review.
• Auditable rule set. Selection, weighting, hedge sizing, and removal run as deterministic code against the published thresholds.
• Real time keeper monitoring. Keepers running the allocator, hedge sizer, NAV oracle, and roll engine publish run status, last execution, and outputs to a public dashboard.
• On chain audit trail. Every keeper run logged on chain with inputs, outputs, and code commit hash.

Discretionary action policy

The methodology is deterministic. Cases not covered by the published rule set are handled under a documented discretion policy:

• No selection or weighting overrides. Selection and concentration outputs are taken from the rule based engine without override.
• Operational discretion only. Permitted for execution timing and source fallback within published bands. Logged on chain.
• Methodology gaps. Flagged and addressed via the standard versioning process. No retroactive amendments.

Disclosures

The Navmont Yield Index is a benchmark, not an investment. All thresholds, caps, and schedules described in this document are versioned and subject to change under the published governance process. This document is the master rule set; in case of conflict with summary materials elsewhere, this document governs.

For institutional review only. Not for retail distribution. Contact investors@navmont.xyz with questions.