Adding Alternatives: The Next Asset Class - Managed Futures

CATALYST FUNDS RESEARCH

Adding Alternatives: The Next Asset Class: Managed Futures

August 2018 | Public Version

Traditionally, there have been five major asset classes in which to invest for long-term objectives such as retirement, paying for college, leaving a legacy, etc. After an era of unprecedented central bank intervention, there are a number of potential risk factors (e.g., trade war and other political risks, rising interest rates, etc.) that could trigger a potential drawdown in the equity markets. Given today’s investment environment, how can investors de-risk a portfolio with these five asset classes?

Stocks are at all-time highs with 2018’s gains coming from only a handful of stocks
Bonds have already suffered as interest rates rise from all-time lows
Real Estate is also at all-time highs with liquidity concerns and a history of significant drawdowns
Gold may have already peaked in 2011 during quantitative easing (QE)
Cash invested in bank deposits may require 30+ years to double the investment

We believe that managed futures exposure could be effective in de-risking a portfolio in today’s environment. Historically, implementing managed futures exposure into a portfolio may have resulted in higher returns with reduced drawdowns and lower volatility.

Managed Futures Have Historically Delivered Diversified Returns Uncorrelated to Most Major Markets

Attractive Risk-Adjusted Returns: Growth of $10,000 for Managed Futures, Equities, a 50/50 Portfolio and a 60/40 Portfolio

Significantly Lower Drawdowns: Historical Drawdowns for Managed Futures, Equities, a 50/50 Portfolio and a 60/40 Portfolio

Historical correlations, returns and drawdowns based on monthly return data for BarclayHedge CTA Index (Managed Futures), S&P 500 Price Index (U.S. Equities), 50% U.S. Equities/50% Managed Futures (50/50 Portfolio; rebalanced monthly), MSCI World Index (World Stocks), Bloomberg Barclays US Aggregate Bond Total Return Index (Bonds), FTSE NAREIT All Equity REITS TR Index (Equity REITs), S&P GSCI TR Index (Commodities), LBMA Gold Price PM (Gold), and 60% U.S. Equities/40% Bonds (60/40 Portfolio; rebalanced monthly) from January 1980 to June 2018.
Source: Bloomberg LP.

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.

Past performance is no guarantee of future results. The referenced indices are shown for general market comparisons and are not meant to represent any fund. Investors cannot directly invest in an index; unmanaged index returns do not reflect any fees, expenses or sales charges.

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4989-NLD-8/7/2018