Exploring the Process and Historical Returns of the Catalyst/SMH High Income Fund (HIIIX)
Fixed income investors face a difficult challenge. While high yield bonds can offer attractive income potential, the market itself is vast, complex, and often misunderstood. Thousands of securities trade across a wide range of industries, credit profiles, and capital structures. Some may offer compelling value, while others carry risks that aren't immediately apparent.
For some, high yield investing can feel like standing at the base of a sprawling mountain range in search of diamonds. The opportunities are there, but so are countless rocks that can distract from the real prize.
The challenge isn't simply finding a bond with a high coupon. It's determining whether the issuer has the financial strength to meet its obligations, if investors are being adequately compensated for the risks involved, and whether a security offers better value than the many alternatives available in the market.
Through a disciplined three-step investment process, the investment team narrows a universe of more than 2,000 securities into a focused portfolio of approximately 40–60 holdings, seeking to uncover the market's diamonds in the rough.
Assessing the High Yield Opportunity Set
HIIIX is built around a bottom-up, research-driven credit process designed to replace duration risk with selective credit exposure.
The team performs an exhaustive analysis of an issuing company’s financial statements.
Each issuer must have enough tangible assets to cover the costs of the bonds. The Fund typically invests in non-investment grade corporate bonds, convertible securities, and asset-backed securities — with a focus on relative value rather than overpriced securities and markets.
The first step, “surveying the mountain”, is designed to mitigate credit risk and whittle down the investment universe to 300–500 securities.
The team “separates the ore from the rock” by assessing whether the security is likely to provide adequate return for the risk. The goal is to purchase securities that offer attractive relative value, while avoiding overpriced securities and markets.
Finally, positions are sized in an effort to avoid mirroring the market.
By holding a focused portfolio of 40–60 securities, the team seeks to mitigate credit and market risk while adding excess return potential.
Rather than owning hundreds of bonds simply because they’re in an index, the team seeks to identify the most compelling opportunities and build a concentrated portfolio around those convictions. The objective is not to collect more rocks than everyone else — it’s to find the potential diamonds worth owning.
The Results of HIIIX’s Diamond Hunt
Of course, the value of any investment process is ultimately measured by its outcomes. HIIIX has delivered competitive returns across multiple market environments while maintaining a focused portfolio built around its highest-conviction ideas.
Growth of $10,000 • Class I (HIIIX) • Inception 7/1/2013 • As of 3/31/2026. For illustrative purposes only. Past performance does not guarantee future results.
Performance Ending 03/31/2026 — Annualized if greater than a year
| Share Class / Benchmark | QTD | YTD | 1 Year | 3 Years | 5 Years | 10 Years | Since Inception |
|---|---|---|---|---|---|---|---|
| Class I Inception: 07/01/2013 | |||||||
| Class I | -2.20% | -2.20% | 15.70% | 11.95% | 5.45% | 8.58% | 3.30% |
| Bloomberg US Agg TR Index | -0.05% | -0.05% | 4.35% | 3.63% | 0.31% | 1.70% | 2.10% |
| ML US Cash Pay HY | -0.51% | -0.51% | 7.02% | 8.54% | 4.25% | 6.06% | 5.26% |
| Class A & C Inception: 05/21/2008 | |||||||
| Class A | -2.26% | -2.26% | 15.43% | 11.79% | 5.24% | 8.31% | 4.05% |
| Class C | -2.41% | -2.41% | 14.59% | 10.93% | 4.44% | 7.52% | 3.28% |
| Class A w/ Sales Charge | -6.91% | -6.91% | 9.95% | 9.99% | 4.22% | 7.79% | 3.76% |
| Bloomberg US Agg TR Index | -0.05% | -0.05% | 4.35% | 3.63% | 0.31% | 1.70% | 2.88% |
| ML US Cash Pay HY | -0.51% | -0.51% | 7.02% | 8.54% | 4.25% | 6.06% | 6.48% |
There is no assurance that the Fund will achieve its investment objective. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
The Fund's maximum sales charge for Class "A" shares is 4.75%. 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 fund's prospectus please call the fund, toll free at 1-866-447-4228. You can also obtain a prospectus at www.CatalystMF.com. Total operating expenses for the Class A, C, and I shares is 2.37%, 3.12% and 2.12%, respectively.
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 are 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. Neither Catalyst Capital Advisors, LLC nor SMH Capital Advisors, LLC, are affiliated with Northern Lights Distributors, LLC.
HIIIX was also rated 5-stars by Morningstar for the 3-year, 5-year, and 10-year periods out of 580, 538, and 437 funds, respectively, in the High Yield Bond category, for the period ending 3/31/2026. The overall Morningstar rating for HIIIX is 5-stars out of 580 Funds in the High Yield Bond category, based on risk-adjusted returns, for the period ending 3/31/2026. 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 damage or losses arising from any use of this information. Past performance is no guarantee of future results.
The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life sub-accounts, 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. The Morningstar Rating for funds is calculated based on risk-adjusted returns. 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 ten-year Morningstar Rating metrics (as applicable).
LSEG Lipper Fund Award rankings are based on the Lipper Leader for Consistent Return Rating, which is an objective, risk adjusted performance measure calculated over 36, 60, and 120 months as of 11/30/2025. LSEG Lipper Fund Awards, ©2026. All rights reserved. Used under license. The Catalyst/SMH High Income Fund, Institutional Share Class (HIIIX), received an LSEG Lipper Fund Award for the best fund among 94 funds in the High Yield Funds Category based on a risk adjusted performance for the three year period ending November 30, 2025. HIIIX also received an LSEG Lipper Fund Award for the best fund among 84 funds in the High Yield Funds Category based on risk-adjusted performance for the 10-year period ending November 30, 2025. The LSEG Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The LSEG Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60, and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the LSEG Lipper Fund Award.
Bloomberg U.S. Aggregate Bond TR Index: a market capitalization-weighted index that is designed to measure the performance of the U.S. investment grade bond market with maturities of more than one year.
Merrill Lynch US Cash Pay High Yield Index: tracks the performance of U.S. dollar denominated below investment grade corporate debt, currently in a coupon paying period, that is publicly issued in the US domestic market.
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