Another Bear Market, Another Positive Return for this Fund
How MBXIX Has Thrived as the Market Tanked

By Michael Schoonover | June 2022

In an environment set up to be a lost decade for many traditional asset classes, a potentially compelling option is a fund like the Catalyst/Millburn Hedge Strategy Fund (MBXIX), which has generated positive returns in both bull and bear markets.

The current investment environment has been quite difficult, to say the least, and with rising rates, inflation that has been anything but transitory, and geopolitical uncertainty abound, it’s difficult to find a promising outlook for the coming years. In fact, 2022 seems to be setting the stage for the 2020’s to be 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.

Is 2022 the Turning Point That Leads to a Lost Decade for Both Stocks and Bonds in 2022?

Source: Catalyst Capital Advisors LLC and Bloomberg LP. Data as of 05/11/2022.

Near-zero yields that are bound to increase combined with stretched equity valuations and growing risks have had investors with heavy exposure to “traditional” portfolio models on alert for years. Despite the warning signs, many investors had a fear of missing out on market upside.

Trying to manage upside participation and downside market risk makes a fund like the Catalyst/Millburn Hedge Strategy Fund (MBXIX) a potentially compelling option for a portfolio. Whether looking to compliment traditional investments or replacing pure equity, 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.

In an environment with limited options for positive returns,
many investors have been looking to strategies like MBXIX.

Here are four reasons why investors have been reallocating from their traditional asset class exposure to MBXIX.

1. MBXIX delivered positive returns during the bear markets of 2000-2002 and 2008.

MBXIX’s strategy combines two distinct components. During a structural bear market, which is what tends to occur during a Lost Decade, the Fund’s futures component has the potential to produce returns that more than offset any losses from the equity component. This was the case for the last two equity bear markets (2000-2002 and 2008) where MBXIX was positive during both periods.

How does MBXIX currently implement its strategy?

Passive Equity Portfolio
Approximately $0.50 of notional exposure for every $1.00 invested

  • Designed to provide beta exposure to equities for normal, upward trending markets
  • Domestic, developed, and emerging market exposure via ETFs
  • U.S. equity exposure diversified by market capitalization (small, mid, and large)

Futures Program
Approximately $0.70 of notional exposure for every $1.00 invested

  • Designed to leverage uncorrelated nature for both incremental returns and to offset equities during periods of long-term structural market change
  • Multiple model approach
  • Implements machine learning technology

Approach cannot be replicated through two different funds as $1.00 allocated separately to futures and equities will only give an investor $1.00 in exposure. More than 100% notional exposure is possible because collateral required for futures is less than the notional exposure provided (i.e., $.030 in collateral may be needed for %.50 in exposure).

2. MBXIX More Than Doubled During the Last Lost Decade for Stocks.

The last Lost Decade for stocks occurred from 2000 to 2009. During this period, the S&P 500 TR Index lost more than 9% of its value. If you had a $1 million retirement portfolio invested in the S&P 500 at the end of 1999 and did not take any distributions, you would have lost more than $90,000 by the end of 2009. Losing $90,000 over ten years certainly isn’t a good way to help meet financial goals when the cost of living keeps rising. On the other hand, an investment in a fund like MBXIX, that more than doubled, would have been at more than $2.6 million by the end of 2009.

MBXIX Generated a +164% Return During the Last Lost Decade for the S&P 500 Index.

Source: Catalyst Capital Advisors LLC and Bloomberg LP.

3. MBXIX Has Delivered in Bear and Bull Markets, Never Producing a Negative 5-Year Rolling Return.

Some investment products are designed to do well when market conditions deteriorate but then fail to deliver–or even deliver negative returns–during good market environments. These “bear market” products are unfortunately difficult to implement as part of a long-term portfolio strategy because they often tend to lose too much value over good market environments and/or end up out of the portfolio right when an investor needs the product most.

In contrast, MBXIX is designed with the potential to produce positive returns during both bull and bear markets. This has been demonstrated historically where MBXIX has never generated a negative 5-year rolling return (based on month-end data) since 1997 (as of Q1 2022), compared to the S&P 500, which has negative 5-year returns 20% of the time.

 MBXIX  S&P 500 TR Index  MSCI ACWI  Russel 2000 TR Index
 Number of 5-Year Periods  244  244  244  244
 Average 5-Year Annualized Return  9.89%  7.37%  3.90%  8.35%
 Best 5-Year Annualized Return  18.02%  23.00%  18.32%  26.63%
 Worst 5-Year Annualized Return  1.66%  -6.63%  -6.95%  -6.68%
 Standard Deviation of 5-Year Periods  3.00%  7.10%  5.81%  6.07%
 Profitable Periods (%)  100%  80%  69%  91%
 Average Profitable Period Return*  9.89%  9.67%  6.86%  9.34%
 Unprofitable Periods (%)  0%  20%  31%  9%
 Average Unprofitable Period Return*  N/A  -1.81%  -2.78%  -2.11%

Source: Catalyst Capital Advisors LLC and Bloomberg LP.

4. Investors Don’t Have to Sacrifice Exposure to Equities When They Allocated to MBXIX.

Despite the drawdown in equities that has already occurred, the S&P 500 TR cyclically adjusted price-to-earnings ratio is still at 37.4x compared to the long-term average of 20.6x (as of April 2022), suggesting that equities still could have a long way to decline before bottoming out. Likewise, bond yields still remain near historical lows.

The S&P 500 Index Has Not Historically Delivered Strong Returns Following Valuations Like April 2022.

Source: Robert Shiller and Catalyst Capital Advisors LLC based on data from 1900 to April 2022.

Going forward, it’s difficult to predict where markets will end up in 2022. 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 environment we are in for in 2022 and beyond.

Positioning Your Portfolio for A Lost Decade in Stocks and Bonds.

Adding a hybrid equity/futures strategy like MBXIX to a portfolio is a potentially attractive option for the current market environment as you can maintain equity exposure but also gain access to a long/short futures portfolio spanning 125+ global markets, providing the potential for positive overall returns during a structural bear market environment.

Investors have a few options for these types of strategies, but investors are choosing MBXIX because of its proven track record, distinct approach, and wide availability across financial firms.

About the Author

Michael Schoonover is Chief Operating Officer of Catalyst Capital Advisors LLC and Rational Advisors, Inc. and Portfolio Manager of a share buyback strategy fund at Catalyst Funds. He began his association with Catalyst in 2011 as a research consultant supporting the implementation and back testing of quantitative strategies. In March 2013, he became a senior analyst at Catalyst to provide investment research for several mutual funds. From 2005-2011, he served in various technical and scientific management roles with the Perrigo Company. Mr. Schoonover has an MBA with high distinction from the University of Michigan Ross School of Business and a BS from the University of Michigan.

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

Share Class/Benchmark 1 Year 3 Years 5 Years 10 Years Since Inception*
Class I 13.41 8.89 7.76 9.19 10.80
S&P 500 TR Index 15.65 18.92 15.99 14.64 9.45
ML 3 Month T-Bill Index 0.06 0.81 1.13 0.63 2.04
Class A 13.16 8.63 7.49 n/a 9.61
Class C 12.28 7.82 6.69 n/a 8.79
S&P 500 TR Index 15.65 18.92 15.99 n/a 15.61
ML 3 Month T-Bill Index 0.06 0.81 1.13 n/a 0.97
Class A w/Sales Charge 6.66 6.50 6.23 n/a 8.58

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 2.29%, 3.04%, and 2.04%, respectively. 

*The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share and is used to determine the value of a company. 

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.

8116-NLD-05262022

Contact Us

Have a question? Drop us a line and a Catalyst Funds representative will get back to you ASAP!

Start typing and press Enter to search