This report and the financial statements contained herein are submitted for the general information of the shareholders of the Aspiration Redwood Fund (the “Fund”). The Fund’s shares are not deposits or obligations of, or guaranteed by, any depository institution. The Fund’s shares are not insured by the FDIC, Federal Reserve Board or any other agency, and are subject to investment risks, including possible loss of principal amount invested. Neither the Fund nor the Fund’s distributor is a bank.
The Aspiration Redwood Fund is distributed by Aspiration Financial LLC, Member FINRA/SIPC, 4551 Glencoe Avenue, Marina Del Ray, CA 90292.
2022 Redwood Annual Shareholder Letter
Commentary from Aspiration Management
Dear Aspiration Redwood Fund Shareholder,
Thank you for investing in the Aspiration Redwood Fund.
The past year has been a rough ride for investors, with the first sustained market decline after nearly ten years of virtually uninterrupted gains. It seems like the economy doesn’t know what it should be doing, with inflation at rates not seen since the 1980s and the Fed quickly increasing interest rates from near zero to over three percent, while consumer spending remains high. You could ask 10 economists and get 12 different answers on why this is the case, but a land war in Europe for the first time since World War 2 and a global supply chain that is still recovering from the COVID-19 pandemic certainly do not help.
Even with all this, there is still the ever-present global concern that is the Climate Crisis.
While many of these things are outside of our individual control, one thing we can control is what we do with our money, and that is why we offer the Aspiration Redwood Fund - to give shareholders the ability to choose a fund that seeks to invest in companies based on various financial factors as well as fundamental sustainability factors, such as the environmental, social, and governance performance of such companies.
We believe that an ESG investment strategy that encourages those large companies who are doing better and incentivizes others to catch up is one important way to make change through sustainable investing, while offering the opportunity for long-term growth for our shareholders.
Sincerely,
Aspiration Fund Adviser, LLC Management
UBS Section on Fund Performance
The Aspiration Redwood Fund
The Fund seeks to maximize total return by investing in equity securities that trade in U.S. markets that the Sub-Advisor believes are attractively valued and typically has a strong sustainability profile in order to provide risk-adjusted returns over the longer term.
Equities and bonds continued to fall in tandem in September, amid persistent concern that stubbornly high inflation would lead central banks to continue raising rates at a rapid pace. Global stocks lost 9.6% and have now more than reversed a rally earlier this summer for a year-to-date negative return of 25.6%. The S&P 500 ended the month with a loss of 9.2% for the month and 4.9% for the quarter - marking the longest run of quarterly losses since 2009. Even defensive markets retreated, with the MSCI UK down 5% and the MSCI Switzerland down 5.8%. The largest decline was in the MSCI China, which lost 14.1%, for a negative return in the third quarter of 29.5%, reflecting diminishing hopes over the prospect for a vigorous economic recovery amid a property crisis and continued COVID-19 lockdowns. For the third quarter as a whole, global equities returned –6.8%, with weak performance in August and September outweighing a bright July. Chinese equities delivered a total return of –21.7% as zero-COVID restrictions and the property crisis weighed on sentiment. Emerging market equities were down 11.6%, with a hawkish Fed, strong US dollar, and geopolitical uncertainty among the headwinds. Rising bond yields weighed on Swiss and Eurozone equities, which lost 4.9% and 4.5%, respectively, during the quarter.
The S&P 500 returned –4.9%, recording its third consecutive quarterly decline for the first time since the global financial crisis. UK equities lost 2.9%, while Japanese stocks were down just 1.6% on the quarter.
The Fund returned -18.94%* for the 6-month reporting period ended September 30, 2022 and outperformed the S&P 500 Index (the benchmark). The benchmark returned -20.20% for the same reporting period.
Outperformance was mainly driven by positive stock selection in Financials, followed by the portfolio’s underweight to Communication Services. Stock selection in Financials benefitted from rising interest rates, particularly on the insurance side where higher rates boosted profitability; and not owning some mega cap names in Communication Services that had seen sharp sell-offs recently contributed positively to relative performance.
Meanwhile, the portfolio’s structural underweight to Energy, as this portfolio is ex-fossil fuels, detracted from relative performance during the reporting period as energy companies broadly benefitted from rising commodity prices. Stock selection in Real Estate also detracted from relative performance during the time period.
We anticipate further volatility as markets continue to grapple with inflationary pressures, monetary tightening, signs of slower growth, and geopolitical uncertainty. Recession risks have clearly increased this year, and we anticipate further earnings revisions as we look to Q3 2022 results. In this environment, we are maintaining our price discipline, taking opportunities to buy or increase positions where we feel the stock price has been punished beyond what the company’s fundamentals imply; and we continue to focus on constructing a well-balanced portfolio that maximizes stock specific risk where possible.
The portfolio’s largest overweights are to Information Technology and Industrials; and are underweight to Consumer Staples and Utilities.
*The returns shown above are based on currently available information and are subject to revision. Past performance is not indicative of future results. Performance figures are gross of fees in USD and do not reflect the deduction of advisory fees or other expenses that reduce client returns.
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| Performance Update (Unaudited) | | | | | | | | | | | | | |
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| For the period from November 16, 2015 (Date of Initial Public Investment) through September 30, 2022 | | | | | | |
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| Comparison of the Change in Value of a $10,000 Investment | | | | | | | | | | | | |
1. Organization and Significant Accounting Policies
The Aspiration Redwood Fund (the “Fund”) is a series of the Aspiration Funds (the “Trust”). The Trust was organized as a Delaware statutory trust on October 16, 2013 and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.
The Fund is a separate diversified series of the Trust and commenced operations on November 16, 2015. The investment objective is to maximize total return, consisting of capital appreciation and current income. To achieve its investment objective, the Fund invests in, or seeks exposure to, companies based on various financial factors, as well as fundamental sustainability factors such as the environmental, social, and governance performance of such companies. The Fund invests in equity securities that trade on U.S. securities markets, which may include securities of non-U.S. issuers as well as securities of U.S. issuers. The equity securities in which the Fund invests include, but are not limited to, dividend-paying securities, common stock, preferred stock, equity securities of real estate investment trusts (“REITS”), shares of investment companies, convertible securities, warrants, and rights. The Fund may purchase equity securities in an initial public offering (“IPO”) provided that the investment is consistent with the Fund’s investment strategy. The Fund may, but is not required to, use exchange-traded derivative instruments for risk management purposes or as part of the Fund’s investment strategies.
The following is a summary of significant accounting policies consistently followed by the Fund. The policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Fund follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 “Financial Services – Investment Companies.”
Principles of Accounting
The Fund uses the accrual method of accounting for financial reporting purposes.
Net Asset Value
The net asset value (“NAV”) per share of each class of a Fund is determined by dividing the Fund’s net assets attributable to each class by the number of shares issued and outstanding of that class on each day the New York Stock Exchange (“NYSE”) is open for trading. The Fund has one class of beneficial interests as of September 30, 2022.
Investment Valuation
Equity securities are generally valued by using market quotations but may be valued on the basis of prices furnished by a pricing service selected by the Advisor. Securities that are traded on any stock exchange or on the NASDAQ over-the-counter market are generally valued by the pricing service at the last quoted sale price. Lacking a last sale price, an equity security is generally valued by the pricing service at its last available quotation. Fixed income securities, including short-term investments with maturities of less than 61 days when acquired, are normally valued on the basis of prices obtained from independent third-party pricing services selected by the Advisor, which are generally determined with consideration given to institutional bid and last sale prices and take into account securities prices, yield, maturity, call features, ratings, institutional sized trading in similar groups of securities and developments related to specific securities. Debt obligations with remaining maturities of sixty days or less are valued at their amortized cost.
The Board of Trustees, including the majority of the Trustees who are not “interested persons” of the Trust, as such term is defined in the 1940 Act, has designated Aspiration Fund Advisors, LLC (the “Advisor”) to serve as the “Valuation Designee” under Rule 2a-5 to perform fair value determinations subject to the Board’s oversight. The Valuation Designee has designated certain individuals at the Advisor (the “Pricing Committee”) to carry out the Advisor’s responsibilities as Valuation Designee to the Trust. When (i) market quotations are not readily available, or (ii) the validity of the price is otherwise questionable or unreliable, securities are valued as determined in good faith by the Valuation Designee, acting through its Pricing Committee, pursuant to policies and procedures approved by the Board of Trustees.
The Fund may invest in portfolios of open-end investment companies (the “Underlying Funds”). The Underlying Funds value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value to the methods established by the board of directors of the Underlying Funds. Open-ended funds are valued at their respective net asset values as reported by such investment companies.
| Aspiration Redwood Fund |
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| Notes to Financial Statements – Continued |
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| As of September 30, 2022 |
Fair Value Measurement
Various inputs are used in determining the fair value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1: quoted prices in active markets for identical securities
Level 2: other significant observable inputs (including quoted prices for similar securities and identical securities in inactive markets, interest rates, credit risk, etc.)
Level 3: significant unobservable inputs (including the Fund’s own assumptions in determining fair value of investments)
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following table summarizes the inputs as of September 30, 2022, for the Fund’s investments measured at fair value:
| Aspiration Redwood Fund | | |
| Investments in Securities (a) | | Total | | Level 1 | | Level 2 | | Level 3 |
| Investments | | | | | | | | |
| Common Stocks* | $ | 113,395,500 | $ | 113,395,500 | $ | - | $ | - |
| Real Estate Investment Trust | | 2,915,920 | | 2,915,920 | | - | | - |
| Short-Term Investment | | 3,759,728 | | 3,759,728 | | - | | - |
| Total Investments | $ | 120,071,148 | $ | 120,071,148 | $ | - | $ | - |
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* Refer to the Schedule of Investments for a breakdown by sector.
(a) There were no Level 3 investments during the fiscal year ended September 30, 2022.
General Risks
The Fund seeks to achieve its investment objective by investing in companies based on various financial factors and fundamental sustainability factors such as the environmental, social, and governance performance of such companies. The Fund invests in equity securities that trade on U.S. securities markets, which may include securities of non-U.S. issuers as well as securities of U.S. issuers. The equity securities in which the Fund invests include, but are not limited to, dividend-paying securities, common stock, preferred stock, equity securities of REITS, shares of investment companies, convertible securities, warrants, and rights. The Fund may purchase equity securities in an IPO provided that the investment is consistent with the Fund’s investment strategy. The Fund may, but is not required to, use exchange-traded derivative instruments for risk management purposes or as part of the Fund’s investment strategies.
Generally, derivatives are financial contracts with value dependent upon, or derived from, the value of an underlying asset, reference rate, or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, and related indexes. The derivatives in which the Fund may invest include futures and forward currency agreements. These derivatives may be used for risk management purposes to manage or adjust the risk profile of the Fund. Futures on currencies and forward currency agreements may also be used to hedge against a specific currency. In addition, futures on indices may be used for investment (non-hedging) purposes to earn income; to enhance returns; to replace more traditional direct investments; or to obtain exposure to certain markets. The principal risks of investing in the Fund include: management risk, market risk, equity securities risk, focused investment risk, derivatives risk, convertible securities risk, limited capitalization risk, portfolio turnover risk, IPOs risk, foreign investment risk, futures risk, leverage risk associated with financial instruments, investment company risk, REITS risk, temporary defensive positions risk, and cybersecurity risk. The Fund held no derivatives as of the fiscal year ended September 30, 2022.
| Aspiration Redwood Fund |
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| Notes to Financial Statements – Continued |
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| As of September 30, 2022 |
The COVID-19 pandemic and the recovery response has caused and continues to cause at times reduced consumer demand and economic output, supply chain disruptions, and market closures, travel restrictions, quarantines, and disparate global vaccine distributions. As with other serious economic disruptions, governmental authorities and regulators have responded in recent years to this situation with significant fiscal and monetary policy changes. These included providing direct capital infusions into companies, introducing new monetary programs, and lowering interest rates. In some cases, these responses resulted in high inflation, low interest rates, and negative interest rates (which have since risen). These actions, including their reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, continue to cause higher inflation, heighten investor uncertainty, and adversely affect the value of the Fund's investments and the performance of the Fund. These actions also contribute to a risk that asset prices have a high degree of correlation across markets and asset classes. The duration and extent of COVID-19 over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19 and the extent to which COVID-19 impacts the Fund will depend on future developments, which are highly uncertain and difficult to predict.
Russia’s invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict, have increased and may continue to increase volatility and uncertainty in financial markets worldwide. The United States and other countries have imposed broad-ranging economic sanctions on Russia and Russian entities and individuals, and may impose additional sanctions, including on other countries that provide military or economic support to Russia. These sanctions, among other things, restrict companies from doing business with Russia and Russian issuers, and may adversely affect companies with economic or financial exposure to Russia and Russian issuers. The extent and duration of Russia’s military actions and the repercussions of such actions are not known. The invasion may widen beyond Ukraine and may escalate, including through retaliatory actions and cyberattacks by Russia and even other countries. These events may result in further and significant market disruptions and may adversely affect regional and global economies including those of Europe and the United States. Certain industries and markets, such as those involving oil, natural gas and other commodities, as well as global supply chains, may be particularly adversely affected. Whether or not the Fund invests in securities of issuers located in Russia, Ukraine and adjacent countries or with significant exposure to issuers in these countries, these events could negatively affect the value and liquidity of the Fund’s investments.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Realized gains and losses are determined on the identified cost basis, which is the same basis used for Federal income tax purposes.
Expenses
The Fund bears expenses incurred specifically on its behalf as well as a portion of Trust level expenses, which are allocated according to methods reviewed by the Board of Trustees (“Trustees”). Currently, the Fund is the only fund of the Trust and therefore bears all of the Trust level expenses.
Distributions
The Fund may declare and distribute dividends from net investment income (if any) annually. Distributions from capital gains (if any) are generally declared and distributed annually. Dividends and distributions to shareholders are recorded on ex-date.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in the net assets from operations during the reporting period. Actual results could differ from those estimates.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
| Aspiration Redwood Fund |
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| Notes to Financial Statements – Continued |
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| As of September 30, 2022 |
| 2. | Transactions with Related Parties and Service Providers |
Advisor
Under the Fund’s investment advisory agreement, the Advisor receives an annual advisory fee of 0.00% of the Fund’s average daily net assets. In other words, the Advisor does not charge any management fees with respect to the Fund. Only clients of the Advisor may invest in the Fund. These advisory clients must establish an advisory relationship and open an individual advisory account with the Advisor before investing in the Fund. The Advisor does not impose a set fee to manage the individual advisory accounts. Instead, advisory clients can pay the Advisor a fee in the amount they believe is fair to manage their individual advisory accounts.
The Advisor has entered into a contractual agreement (the “Expense Limitation Agreement”) with the Trust, on behalf of the Fund, under which it has agreed to waive or reduce its fees and to assume other expenses of the Fund, if necessary, in amounts that limit the Fund’s total operating expenses (other than brokerage fees and commissions, acquired fund fees and expenses, fees and expenses associated with investments in other collective investment vehicles or derivative instruments, borrowing costs, taxes, or extraordinary expenses, such as litigation and indemnification expenses) to not more than 0.50% of the average daily net assets of the Fund for the current fiscal year. The current term of the Expense Limitation Agreement remains in effect until January 31, 2023. While there can be no assurance that the Expense Limitation Agreement will continue after that date, it is expected to continue from year-to-year thereafter.
Reimbursements and waivers of expenses by the Advisor are subject to repayment by the Fund within three years following the date on which waiver or reimbursement occurred if the Fund is able to make the repayment without exceeding the lesser of its current maximum operating expense limit or the maximum operating expense limit in place at the time of the waiver and/or reimbursement. Please refer to the table below for a breakdown of the reimbursements and repayment periods.
| Fiscal Year/Period End | Reimbursement Amount | Repayment Date Expiration |
| September 30, 2022 | $501,351 | September 30, 2025 |
September 30, 2021 September 30, 2020 | $480,413 $715,381 | September 30, 2024 September 30, 2023 |
Sub-Advisor
UBS Asset Management (Americas) Inc. (the “Sub-Advisor”) is responsible for management of the Fund’s investment portfolio according to the Fund’s investment objective, policies, and restrictions. The Sub-Advisor is subject to the authority of the Board of Trustees and oversight by the Advisor. The Sub-Advisor is entitled to receive an annual sub-advisory fee, paid by the Advisor – not the Fund – for advisory services provided to the Fund, according to a formula.
Administrator
The Nottingham Company serves as the Fund’s Administrator (the “Administrator”). The Fund pays a monthly fee to the Administrator based upon the average daily net assets of the Fund and subject to a minimum of $2,000 per month. The Fund incurred $138,237 of fees by the Administrator for the fiscal year ended September 30, 2022.
Fund Accounting Services
The Nottingham Company serves as the Fund’s Fund Accounting Services Provider. Under the terms of the Fund Accounting and Administration Agreement, the Fund Accounting Service Provider calculates the daily net asset value per share and maintains the financial books and records for the Fund. The Fund incurred $40,827 of fees by The Nottingham Company for the fiscal year ended September 30, 2022.
Compliance Services
ACA Global (previously, Cipperman Compliance Services, LLC) provides services as the Trust’s Chief Compliance Officer. ACA Global is entitled to receive customary fees from the Fund for their services pursuant to the Compliance Services agreement with the Fund. The Fund incurred $11,961 in compliance fees for fiscal year ended September 30, 2022.
Custodian
UMB Bank, N.A. provides services as the Fund’s custodian. For its services, the Custodian is entitled to receive compensation from the Fund pursuant to the Custodian’s fee arrangements with the Fund. The Fund paid $109,307 in custody fees for the fiscal year ended September 30, 2022.
| Aspiration Redwood Fund |
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| Notes to Financial Statements – Continued |
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| As of September 30, 2022 |
Transfer Agent
Nottingham Shareholder Services, LLC (“Transfer Agent”), an affiliate of The Nottingham Company, serves as transfer, dividend paying, and shareholder servicing agent for the Fund. For its services, the Transfer Agent is entitled to receive compensation from the Fund pursuant to the Transfer Agent’s fee arrangements with the Fund. The Fund paid $599,408 to the Transfer Agent for the fiscal year ended September 30, 2022.
Distributor
Aspiration Financial, LLC (the "Distributor") serves as the Fund's principal underwriter and distributor. For the fiscal year ended September 30, 2022, the Distributor received $125 for its services to the Fund.
Officers and Trustees of the Trust
As of September 30, 2022, certain officers of the Trust were also officers of the Administrator. Certain Trustees and an officer are also officers of the Advisor.
| 3. | Distribution and Service Fees |
The Trustees, including a majority of the Trustees who are not “interested persons” of the Trust as defined in the 1940 Act and who have no direct or indirect financial interest in such plan or in any agreement related to such plan, adopted a distribution plan pursuant to Rule 12b-1 of the 1940 Act (the “Plan”). The 1940 Act regulates the manner in which a regulated investment company may assume expenses of distributing and promoting the sales of its shares and servicing of its shareholder accounts. The Plan provides that the Fund may incur certain expenses, which may not exceed 0.25% per annum of the average daily net assets of the Investor Class Shares for each year elapsed subsequent to adoption of the Plan, for payment to the Distributor and related offering costs. For the fiscal year ended September 30, 2022, $6,023 in distribution and service fees were incurred by the Fund.
| 4. | Purchases and Sales of Investment Securities |
For the fiscal year ended September 30, 2022, the aggregate cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows:
| Purchases of Securities | Proceeds from Sales of Securities |
| $32,461,778 | $27,840,201 |
5. Federal Income Tax
Distributions are determined in accordance with Federal income tax regulations, which differ from GAAP, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences. There were no such reclassifications as of September 30, 2022.
Management reviewed the Fund’s tax positions taken on federal income tax returns for the open tax years ended September 30, 2019, through September 30, 2022, and determined the Fund does not have a liability for uncertain tax positions. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the fiscal year ended September 30, 2022, the Fund did not incur any interest or penalties.
The Fund identifies its major tax jurisdictions as the United States of America and the State of California, where the Trust makes significant investments.
Distributions during the fiscal years ended September 30, 2022, and September 30, 2021, were characterized for tax purposes as follows:
| | September 30, 2022 | September 30, 2021 | |
| Ordinary Income | $ 11,195,211
| $ -
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| Long-Term Capital Gains | 3,309,003
| -
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| Aspiration Redwood Fund |
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| Notes to Financial Statements – Continued |
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| As of September 30, 2022 |
