As Purchasing Power Slips, Find a Fixed Income Fund that Helps Fill the Gap
Three Factors to Look for & How the Catalyst/SMH High Income Fund (HIIIX) Helped Address the Erosion of Real Dollars
February 2026
For decades, traditional fixed income played a clear role in investor portfolios: offering the potential to generate income, reduce volatility, and preserve purchasing power. But based on our analysis, that role has seemingly fallen apart.
Despite certain temporary spikes, the bond market has generally failed to keep pace with inflation in recent years, which has resulted in negative real returns, and therefore an erosion of purchasing power. This drop-off, in our opinion, has left advisors facing an uncomfortable reality to explain to clients: their portfolios are “diversified”, but they are leaking value in real terms.
But bond investors are not helpless in this scenario. Investors may need to take a different approach to mitigate risk. We recommend products that have the following characteristics:
Strong emphasis on selective credit with asset-backed discipline
A repeatable process that has delivered through multiple market cycles (not just kept pace with bond returns)
Independent validation through performance and peer rankings
Here’s how the Catalyst/SMH High Income Fund (HIIIX) has performed when compared to the Bloomberg Aggregate Bond TR Index and cumulative inflation:
Source: Catalyst Capital Advisor LLC and Bloomberg LP. The Consumer Price Index (“CPI”) represents inflation/deflation. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
In this paper, we’ll outline how HIIIX generally offers investors the three characteristics referenced above and share how the Fund may fit into your overall investment approach.
1
Strong emphasis on selective credit with asset-backed discipline
The Catalyst/SMH High Income Fund is built around a bottom-up, research-driven credit process designed to replace duration risk with selective credit exposure.
Before we get to the investment process, we will explain what we do not do: we do not chase spread and we are not replicating a high yield index.
Total High Yield Universe: 2000+ Securities
Step 1: Universe is reduced to 300-500 securities
The portfolio management 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 distinct focus on relative
value rather than overpriced securities and markets.
Credit Risk Reduction
Step 2: Universe is Reduced to 50-100 Securities
The portfolio management team assesses whether a given
security is likely to provide an adequate return for the
perceived risk being taken. The goal is to purchase those
securities that offer attractive relative value, while avoiding
overpriced securities and markets.
Maximizing Return for the Risk
Step 3: The Final Portfolio of 20-60 Securities is Selected
Positions are sized in an effort to avoid being the market.
By holding a focused portfolio of around 20-60 securities,
the team seeks to mitigate credit and market risk
while also focusing on excess return potential.
Reduction of Market Risk
Resulting Portfolio: 20-60 Securities
2
A repeatable process that has delivered through multiple market cycles
Over full market cycles (including periods of rising rates, falling rates, and elevated inflation) the HIIIX approach has produced outcomes that often differ meaningfully from traditional bond strategies.
Historically, HIIIX has generally:
- Delivered income levels meaningfully above the Bloomberg U.S. Aggregate Bond Index.
- Maintained competitive performance relative to the Bloomberg US Corporate High Yield Index.
Source: Catalyst Capital Advisors LLC and Bloomberg L.P. Data from 12/31/2020 to 12/31/2025. Y-axis represents total return. Past performance does not guarantee future results. Please see important disclosures at the end of this presentation. The Fund’s unsubsidized 30-day SEC yield ending 12/31/2025 is 7.79%. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
As of January 2026, the average effective yield for the U.S. high-yield corporate bond market is approximately 6.48% – 6.60% (Source: St. Louis Fed).
HIIIX offers investors the potential for high current income with a +7.81% subsidized SEC Yield as of 12/31/2025. The unsubsidized SEC yield for the same period is 7.79%.
3
Independent validation through performance and peer rankings
The Fund’s results have also been recognized through independent peer comparisons.
Over multiple trailing periods, HIIIX has ranked near the top of its Morningstar high-yield bond category and has consistently received high Morningstar Ratings based on risk-adjusted returns.
While ratings on their own are not a catch-all for allocation decisions, they provide additional context:
- The Fund’s outperformance was not isolated to a single market environment.
- The Fund’s investment process has demonstrated durability across multiple time periods.
HIIIX Consistently Ranks at the Top of Its Category
Quarter End as of 12/31/2025
| 1-Year | 3-Year | 5-Year | 10-Year | |
|---|---|---|---|---|
| Morningstar Category | High Yield Bond | High Yield Bond | High Yield Bond | High Yield Bond |
| Investment: HIIIX | 15.98% | 13.95% | 6.75% | 9.63% |
| Category: Morningstar High Yield Bond | 8.01% | 9.25% | 4.22% | 5.56% |
| Index: Bloomberg US Aggregate Bond TR | 7.30% | 4.66% | -0.36% | 2.01% |
| HIIIX Quartile Rank in Category |  |
|
|
|
| HIIIX Percentile Rank in Category | 1 | 1 | 2 | 1 |
| # of Investments in Category | 622 | 584 | 548 | 445 |
| HIIIX Morningstar Category Rating | – | ★★★★★ | ★★★★★ | ★★★★★ |
Source: Morningstar. Returns greater than one year are annualized. Data as of 12/31/2025. Past performance is no guarantee of future results.
Many traditional fixed income investors have watched their purchasing power erode.
Doing nothing is also a decision, but HIIIX can be a compelling tool for right now.
Performance Ending 12/31/25
Annualized if greater than a year
| Share Class/Benchmark | QTD | YTD | 1 Year | 3 Years | 5 Years | 10 Years | Since Inception* |
|---|---|---|---|---|---|---|---|
| Class I | 1.17% | 15.98% | 15.98% | 13.95% | 6.75% | 9.63% | 3.55% |
| Bloomberg US Agg TR Index | 1.10% | 7.30% | 7.30% | 4.66% | -0.36% | 2.01% | 2.15% |
| ML US Cash Pay HY | 1.38% | 8.63% | 8.63% | 10.05% | 4.53% | 6.45% | 5.41% |
| Class A | 1.11% | 15.72% | 15.72% | 13.67% | 6.54% | 9.40% | 4.24% |
| Class C | 0.92% | 14.85% | 14.85% | 12.79% | 5.73% | 8.56% | 3.47% |
| Class A w/ Sales Charge | -3.69% | 10.22% | 10.22% | 11.84% | 5.51% | 8.87% | 3.95% |
| Bloomberg US Agg TR Index | 1.10% | 7.30% | 7.30% | 4.66% | -0.36% | 2.01% | 2.93% |
| ML US Cash Pay HY | 1.38% | 8.63% | 8.63% | 10.05% | 4.53% | 6.45% | 6.60% |
*Class A & C Inception: 05/21/2008, Class I Inception: 07/1/2013
There is no assurance that the Fund will achieve its investment objective.
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 funds 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.
You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses, or sales charges. Please see important disclosures at the end of this presentation.
Important Risk Information
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.
Risk Considerations
Investing in the Fund carries certain risks. The value of the Fund may decrease in response to the activities and financial prospects of an individual security in the Fund’s portfolio. The Fund is non-diversified and may invest a greater percentage of its assets in a particular issue and may own fewer securities than other mutual funds. The Fund may be subject to substantial short-term changes. These factors may affect the value of your investment. The Fund invests in lower-quality, non-investment grade bonds, asset backed securities and convertible securities. Non-investment grade corporate bonds are those rated Baa or lower by Moody’s or BBB or lower by S&P (also known as “junk” bonds). Asset-backed securities are securities issued by trusts and special purpose entities that are backed by pools of assets, such as automobile and credit-card receivables and home equity loans, which pass through payments on the underlying obligations to the security holders. Convertible securities are bonds or preferred stocks which are convertible into, or exchangeable for, common stocks. Lower-quality debt securities involve greater risk of default or price changes due to changes in the credit quality of the issuer. Asset Backed securities are subject to the risk that, if the issuer fails to pay interest or repay principal, the assets backing these securities may not be sufficient to support payments on the securities.
HIIIX is rated 5-stars by Morningstar based on risk-adjusted returns for the 3-year, 5-year and 10-year period ending 12/31/2025 (out of 584 funds, 548 funds and 445 funds, respectively, in the High Yield Bond category). The Fund’s Overall Morningstar rating based on risk-adjusted returns for the Overall period ending 12/31/2025 is 5-stars (out of 584 funds in the High Yield Bond category). 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. 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).
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