MBXIX has significantly outperformed many asset classes because it can play offense and defense in the same portfolio.

By Michael Schoonover | January 15, 2023

Stocks and bonds locked in horrendous returns for 2022. Some experts are predicting that Wall Street may get much worse in 2023 before getting better. We analyzed more than 25 years of market data for nine assets classes to understand if certain factors could help investors not only better position for a tumultuous market in 2023 but also for the long-term.

Some of our findings confirmed what many investors already know, such as higher return potential generally comes with higher risk. However, through our analysis, we found a key exception where a strategy produced higher returns than the most offensive asset classes but did so by reducing the extent of drawdowns like the more defensive asset classes. This strategy managed to accomplish this goal by playing offense and defense in the same portfolio, which resulted in participation during equity market upside but also positive returns during bear markets.

The strategy that ended up breaking the trends was the Catalyst/Millburn Hedge Strategy Fund (MBXIX). MBXIX combines an allocation to long-only equity ETFs with a long/short futures portfolio that spans 125+ global markets. This strategy has the potential to provide positive returns in both bear and bull markets and has done so in its 25+ year history.

In this newsletter, we graphically present the findings from our analysis of asset class returns to make the argument why investors should consider positioning for 2023 and beyond by replacing exposure to historically offensive asset classes like equities to strategies like MBXIX, which play offense and defense within the same portfolio.

Unfortunately, the outlook remains bleak with rising rates, inflation, and geopolitical risks abound. In fact, even many typically optimistic market strategists predict that the worst may not arrive until late 2023 or 2024. Combine this with the fact that both equity valuations and bond yields are still far from historical averages, and it looks like 2022 has set the stage for a lost decade–a decade where an asset class generates negative returns–for both stocks and bonds.

A lost decade can derail an investor’s long-term financial goals. But today we’ll explain why not all hope should be lost on investors. By allocating at least 20% to a strategy that is designed to thrive in  bear and bull markets by playing both offense and defense in the same portfolio, like the Catalyst/Millburn Hedge Strategy Fund (MBXIX), investors are positioned to thrive in almost all market environments, including a lost decade.

Source: Bloomberg LP and Backstop BarclayHedge. Data from 01/01/1997 to 12/30/2022. Backstop BarclayHedge data estimates as of 01/17/2023.

Source: Bloomberg LP and Backstop BarclayHedge. Data from 01/01/1997 to 12/30/2022. Backstop BarclayHedge data estimates as of 01/17/2023

Going forward, it’s difficult to predict where markets will end up. In managing money for clients, we understand the goal is to help investors meet their long-term financial objectives, and this implies not only trying to avoid outsized drawdowns, but also generating positive returns that can help an individual meet their financial objectives. It is for this reason we believe it is an ideal time to replace a meaningful portion of any equity allocation you may have with a strategy like MBXIX, which maintains the upside equity exposure but also provides a diversified and non-correlated futures component that could lead to positive returns in various market environments, including the potential adverse environment we face in 2023 and beyond.

Michael Schoonover is Chief Operating Officer of Catalyst Capital Advisors LLC, Catalyst International Advisors LLC and Rational Advisors, Inc. He is an experienced financial professional having worked in various portfolio management, operations management, and trust officer roles. He serves in various executive roles for U.S. registered investment advisers and marketing and consulting companies in the investment management industry. He is President of Mutual Fund Series Trust, President of Mutual Fund & Variable Insurance Trust, and President of Strategy Shares. Mr. Schoonover has a Bachelor of Science degree in biochemistry from the University of Michigan and a Master of Business Administration degree with high distinction from the University of Michigan.

Performance (%): Ending December 31, 2022
Annualized if greater than a year

The Fund’s maximum sales charge for Class “A” shares is 5.75%. 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, please call the fund, toll free at 1-866-447-4228. 

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. Performance shown before December 28, 2015 is for the Fund’s Predecessor Fund (Millburn Hedge Fund, L.P.). Gross expense ratios for share classes A, C, and I are 2.27%, 3.02%, and 2.02%, 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 can be obtained by calling 866-447-4228. 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. 

Risk Considerations: 

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 turn-over 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. Currency trading risks include market risk, credit risk and country risk. Foreign investing involves risks not typically associated with U.S. investments. 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. 

Performance shown before December 28, 2015 is for the Fund’s Predecessor Fund (Millburn Hedge Fund, L.P.). The prior performance is net of management fees and other expenses including the effect of the performance fee. The Predecessor Fund had an investment objective and strategies that were, in all material respects, the same as those of the Fund, and was managed in a manner that, in all material respects, complied with the investment guidelines and restrictions of the Fund. From its inception through December 28, 2015, the Predecessor Fund was not subject to certain investment restrictions, diversification requirements and other restrictions of the 1940 Act or the Code, which if they had been applicable, might have adversely affected its performance. In addition, the Predecessor Fund was not subject to sales loads that would have adversely affected performance. Performance of the predecessor fund is not an indicator of future results.

Alternative investments may not be suitable for all investors and an investment in alternative funds is suitable only for investors who can bear the risks associated with the illiquidity of the fund’s shares and should be viewed as a long-term investment.

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