We researched some of the largest and most popular commodity indexes and funds and determined that there could be another alternative for commodity investors seeking to diversify their portfolio. This option would provide exposure to the three main groups of commodities: Agriculture, Energy, and Metals, and it would focus on avoiding the common headwinds and volatile return behavior that Commodity Tracking and Long-Only funds can face. The goals would be for the opportunity of positive absolute returns along with a lower standard deviation compared to its commodity fund peers and benchmarks.
In 2015 we created such a fund. The strategy involves trading options on futures rather than holding the futures themselves and focusing on trades based on volatility, seasonality, technical analysis, fundamentals and price, with emphasis more heavily weighted towards volatility. Positions are primarily taken as reactions to volatility and pricing, rather than attempting to forecast where the markets will be in the future. Trading spreads can have the potential benefit of improved risk/return trade-offs compared to outright owning futures contracts. An established trend is not necessary for the strategy. The strategy involves actively trading both sides of the market, seeking wide profit ranges.
Since 2015, the Catalyst Hedged Commodity Strategy Fund has been implementing its strategy of trading options on futures of oil, gold and corn. The fund is focused in the three commodity products it trades, yet diversified across the sectors of energy, metals and agriculture. Diversity and hedging within the dynamic portfolio are also attained by compiling positions in various months, strikes and on both sides of the market. In 2018, the Fund's "I" share returned 0.45%, and since inception it has returned 3.51% annualized.
Volatility and Price Changes
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Is Oil's Run-Up
The Fund’s maximum sales charge for Class “A” shares is 5.75%. Gross expense ratios for the fiscal year are 2.63%, 3.38%, and 2.38% for the A, C and I shares respectively. Investments in mutual funds involve risks. Performance is historic and does not guarantee future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month end performance information or the funds prospectus please call the fund, toll free at 1-866-447-4228. You can also obtain a prospectus at www.CatalystMF.com.
Glossary & Risk Considerations
Alpha: A measure of the difference between a fund's actual returns and its expected performance, given its level of risk as measured by beta. Beta: A measure of a fund's sensitivity to market movements. R-squared: A measure of the relationship between a portfolio and its benchmark. Bloomberg Commodity Index TR ("BCOMM TR") is composed of futures contracts and reflects the returns of fully collateralized investments in BCOM, which reflects commodity futures price movements. Option Spread: A type of option that derives its value from the difference between the prices of two or more assets. S&P 500 Total Return Index is considered to be generally representative of the U.S. large capitalization stock market as a whole. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges
Past performance is not a guarantee of future results
Investors should carefully consider the investment objectives, risks, charges and expenses of the Catalyst Funds. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 866-447-4228 or at www.CatalystMF.com. The prospectus should be read carefully before investing. The Catalyst Funds are distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. Catalyst Capital Advisors, LLC is not affiliated with Northern Lights Distributors, LLC.
Investing in the Fund carries certain risks. The Fund will invest a percentage of its assets in derivatives, such as futures and options contracts. The use of such derivatives and the resulting high portfolio turnover may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities and commodities underlying those derivatives. The Fund may experience losses that exceed those experienced by funds that do not use futures contracts, options and hedging strategies. Investing in commodities markets may subject the Fund to greater volatility than investments in traditional securities. Changes in interest rates and the liquidity of certain investments could affect the Fund's overall performance. The Fund is non-diversified and as a result, changes in the value of a single security may have significant effect on the Fund's value. Other risks include U.S. Government securities risks and investments in fixed income securities. Typically, a rise in interest rates causes a decline in the value of fixed income securities or derivatives owned by the Fund. Furthermore, the use of leveraging can magnify the potential for gain or loss and amplify the effects of market volatility on the Fund's share price. The Fund is subject to regulatory change and tax risks; changes to current rules could increase costs associated with an investment in the Fund. These factors may affect the value of your investment.
©2019 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or 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. Past performance is no guarantee of future results. The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 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 managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable).
Please note that the Morningstar ranking is for the I share and A share classes only; other classes will have different performance characteristics due to different expense ratios. Morningstar Percentile Rankings are based on the average annual total returns of the funds in the category for the periods stated and do not include any sales charges or redemption fees. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100.