Allocating to Hybrid Strategies

What Golf and Investing Can Tell Us About the Benefits of a Hybrid Approach

Why Choose a Hybrid Investing Approach?

If you are a golfer, there is a good chance you have a hybrid club in your bag. Despite being practically nonexistent 20 years ago, hybrid golf clubs are now used by most professional golfers, regularly part of a golfer’s set, and in two-thirds of golf iron sets sold today.

A hybrid golf club borrows designs from both irons and woods. It was created out of a need to get more versatility and consistency. This offers an interesting parallel to investing. Hybrid investment strategies, especially those that combine equities and managed futures, offer many potential advantages, including:

  • You don’t need to give up your equity exposure. Many financial advisors find it difficult to simply get out of equities despite being concerned about the market.
  • You get a potential tail risk hedge for structural market changes. Historically, managed futures have performed well in periods of market turmoil. A managed futures strategy overlay on an equity portfolio provides the potential for meaningful positive returns in the overall portfolio even during severe equity market declines.
  • In theory, an investor has the potential to realize more exposure for each dollar invested. Because many managed futures strategies attempt to provide notional leverage in a minimally correlated manner, it is possible to get over $1.00 of exposure for each $1.00 you invest. However, if participating in this strategy, there is no guarantee this will be the case.

50/70 Equity/Managed Futures Hybrid Strategy Allocator Tool

50/40/10 Allocation

Notional Exposure per $1.00 Invested

Historical Investment Outcome for 50/40/10 Portfolio compared to 60/40 Portfolio:

S&P 500 Total Return Index (Equities), Bloomberg Barclays US Aggregate Bond Total Return Index (Fixed Income),  Barclay CTA Index (Managed Futures) monthly return data from December 1989 to September 2019. Blended portfolios rebalanced monthly. Source: Bloomberg LP.

50/40/10 60/40 Diff
Cumulative Return 1195% 1026% 169.10%
Annualized Return 9.07% 8.55% 0.52%
Standard Deviation 8.20% 8.80% -0.60%
Return/Risk 1.11 0.97 0.13
Maximum Drawdown -28.87% -32.54% 3.67%

Growth of $10K

Drawdowns

Rolling 3-Year Correlation to S&P 500

Annual Returns

Annual 50/40/10 60/40
12/31/1990 4.49% 1.81%
12/31/1991 25.36% 24.77%
12/31/1992 7.93% 7.59%
12/31/1993 11.29% 9.99%
12/31/1994 -0.69% -0.33%
12/31/1995 31.00% 29.66%
12/31/1996 14.94% 14.97%
12/31/1997 23.89% 23.62%
12/31/1998 21.14% 20.99%
12/31/1999 10.78% 12.00%
12/31/2000 1.15% -1.00%
12/31/2001 -2.18% -3.71%
12/31/2002 -6.94% -9.82%
12/31/2003 18.19% 18.48%
12/31/2004 8.46% 8.30%
12/31/2005 4.13% 4.00%
12/31/2006 11.05% 11.12%
12/31/2007 7.21% 6.22%
12/31/2008 -19.01% -22.06%
12/31/2009 17.72% 18.40%
12/31/2010 12.58% 12.13%
12/31/2011 5.16% 4.69%
12/31/2012 10.84% 11.31%
12/31/2013 15.57% 17.56%
12/31/2014 11.12% 10.62%
12/31/2015 1.18% 1.28%
12/31/2016 7.90% 8.31%
12/31/2017 13.54% 14.21%
12/31/2018 -2.35% -2.35%

Rolling 3-Year Returns

50/40/10 60/40
Number of 3-Year Periods 322 322
Average 3-Year Annualized Return 9.05% 8.61%
Best 3-Year Annualized Return 23.10% 23.01%
Worst 3-Year Annualized Return -5.46% -7.24%
Standard Deviation of 3-Year Periods 5.96% 6.41%
Profitable Periods (%) 91.30% 86.65%
Average Profitable Period Return (Annualized) 10.06% 10.33%
Unprofitable Periods (%) 8.70% 13.35%
Average Unprofitable Period Return (Annualized) -1.60% -2.50%

Rolling 5-Year Returns

50/40/10 60/40
Number of 5-Year Periods 298 298
Average 5-Year Annualized Return 8.92% 8.45%
Best 5-Year Annualized Return 20.14% 20.09%
Worst 5-Year Annualized Return -1.18% -2.26%
Standard Deviation of 5-Year Periods 4.75% 5.08%
Profitable Periods (%) 99.33% 98.99%
Average Profitable Period Return (Annualized) 8.98% 8.55%
Unprofitable Periods (%) 0.67% 1.01%
Average Unprofitable Period Return (Annualized) -0.62% -1.33%

40/40/20 Allocation

Notional Exposure per $1.00 Invested

Historical Investment Outcome for 40/40/20 Portfolio compared to 60/40 Portfolio:

S&P 500 Total Return Index (Equities), Bloomberg Barclays US Aggregate Bond Total Return Index (Fixed Income),  Barclay CTA Index (Managed Futures) monthly return data from December 1989 to September 2019. Blended portfolios rebalanced monthly. Source: Bloomberg LP.

40/40/20 60/40 Diff
Cumulative Return 1385% 1026% 359.02%
Annualized Return 9.58% 8.55% 1.02%
Standard Deviation 7.69% 8.80% -1.11%
Return/Risk 1.25 0.97 0.27
Maximum Drawdown -25.02% -32.54% 7.52%

Growth of $10K

Drawdowns

Rolling 3-Year Correlation to S&P 500

Annual Returns

Annual 40/40/20 60/40
12/31/1990 7.21% 1.81%
12/31/1991 25.95% 24.77%
12/31/1992 8.26% 7.59%
12/31/1993 12.60% 9.99%
12/31/1994 -1.06% -0.33%
12/31/1995 32.34% 29.66%
12/31/1996 14.89% 14.97%
12/31/1997 24.16% 23.62%
12/31/1998 21.26% 20.99%
12/31/1999 9.57% 12.00%
12/31/2000 3.33% -1.00%
12/31/2001 -0.65% -3.71%
12/31/2002 -4.00% -9.82%
12/31/2003 17.89% 18.48%
12/31/2004 8.62% 8.30%
12/31/2005 4.25% 4.00%
12/31/2006 10.98% 11.12%
12/31/2007 8.21% 6.22%
12/31/2008 -15.87% -22.06%
12/31/2009 17.03% 18.40%
12/31/2010 13.03% 12.13%
12/31/2011 5.63% 4.69%
12/31/2012 10.36% 11.31%
12/31/2013 13.62% 17.56%
12/31/2014 11.63% 10.62%
12/31/2015 1.07% 1.28%
12/31/2016 7.50% 8.31%
12/31/2017 12.88% 14.21%
12/31/2018 -2.35% -2.35%

Rolling 3-Year Returns

40/40/20 60/40
Number of 3-Year Periods 322 322
Average 3-Year Annualized Return 9.48% 8.61%
Best 3-Year Annualized Return 23.59% 23.01%
Worst 3-Year Annualized Return -3.66% -7.24%
Standard Deviation of 3-Year Periods 5.57% 6.41%
Profitable Periods (%) 97.83% 86.65%
Average Profitable Period Return (Annualized) 9.73% 10.33%
Unprofitable Periods (%) 2.17% 13.35%
Average Unprofitable Period Return (Annualized) -1.57% -2.50%

Rolling 5-Year Returns

40/40/20 60/40
Number of 5-Year Periods 298 298
Average 5-Year Annualized Return 9.38% 8.45%
Best 5-Year Annualized Return 20.19% 20.09%
Worst 5-Year Annualized Return -0.10% -2.26%
Standard Deviation of 5-Year Periods 4.47% 5.08%
Profitable Periods (%) 99.66% 98.99%
Average Profitable Period Return (Annualized) 9.41% 8.55%
Unprofitable Periods (%) 0.34% 1.01%
Average Unprofitable Period Return (Annualized) -0.10% -1.33%

30/40/30 Allocation

Notional Exposure per $1.00 Invested

Historical Investment Outcome for 30/40/30 Portfolio compared to 60/40 Portfolio:

S&P 500 Total Return Index (Equities), Bloomberg Barclays US Aggregate Bond Total Return Index (Fixed Income),  Barclay CTA Index (Managed Futures) monthly return data from December 1989 to September 2019. Blended portfolios rebalanced monthly. Source: Bloomberg LP.

30/40/30 60/40 Diff
Cumulative Return 1597% 1026% 571.60%
Annualized Return 10.07% 8.55% 1.52%
Standard Deviation 7.28% 8.80% -1.52%
Return/Risk 1.38 0.97 0.41
Maximum Drawdown -21.47% -32.54% 11.07%

Growth of $10K

Drawdowns

Rolling 3-Year Correlation to S&P 500

Annual Returns

Annual 30/40/30 60/40
12/31/1990 9.99% 1.81%
12/31/1991 26.52% 24.77%
12/31/1992 8.59% 7.59%
12/31/1993 13.92% 9.99%
12/31/1994 -1.44% -0.33%
12/31/1995 33.69% 29.66%
12/31/1996 14.83% 14.97%
12/31/1997 24.43% 23.62%
12/31/1998 21.34% 20.99%
12/31/1999 8.36% 12.00%
12/31/2000 5.55% -1.00%
12/31/2001 0.87% -3.71%
12/31/2002 -1.01% -9.82%
12/31/2003 17.57% 18.48%
12/31/2004 8.77% 8.30%
12/31/2005 4.38% 4.00%
12/31/2006 10.92% 11.12%
12/31/2007 9.21% 6.22%
12/31/2008 -12.63% -22.06%
12/31/2009 16.34% 18.40%
12/31/2010 13.46% 12.13%
12/31/2011 6.09% 4.69%
12/31/2012 9.87% 11.31%
12/31/2013 11.70% 17.56%
12/31/2014 12.14% 10.62%
12/31/2015 0.95% 1.28%
12/31/2016 7.08% 8.31%
12/31/2017 12.22% 14.21%
12/31/2018 -2.37% -2.35%

Rolling 3-Year Returns

30/40/30 60/40
Number of 3-Year Periods 322 322
Average 3-Year Annualized Return 9.91% 8.61%
Best 3-Year Annualized Return 24.08% 23.01%
Worst 3-Year Annualized Return -1.84% -7.24%
Standard Deviation of 3-Year Periods 5.25% 6.41%
Profitable Periods (%) 99.07% 86.65%
Average Profitable Period Return (Annualized) 10.01% 10.33%
Unprofitable Periods (%) 0.93% 13.35%
Average Unprofitable Period Return (Annualized) -0.79% -2.50%

Rolling 5-Year Returns

30/40/30 60/40
Number of 5-Year Periods 298 298
Average 5-Year Annualized Return 9.84% 8.45%
Best 5-Year Annualized Return 20.23% 20.09%
Worst 5-Year Annualized Return 0.98% -2.26%
Standard Deviation of 5-Year Periods 4.24% 5.08%
Profitable Periods (%) 100.00% 98.99%
Average Profitable Period Return (Annualized) 9.84% 8.55%
Unprofitable Periods (%) 0.00% 1.01%
Average Unprofitable Period Return (Annualized) N/A -1.33%

20/40/40 Allocation

Notional Exposure per $1.00 Invested

Historical Investment Outcome for 20/40/40 Portfolio compared to 60/40 Portfolio:

S&P 500 Total Return Index (Equities), Bloomberg Barclays US Aggregate Bond Total Return Index (Fixed Income),  Barclay CTA Index (Managed Futures) monthly return data from December 1989 to September 2019. Blended portfolios rebalanced monthly. Source: Bloomberg LP.

20/40/40 60/40 Diff
Cumulative Return 1835% 1026% 808.71%
Annualized Return 10.56% 8.55% 2.01%
Standard Deviation 6.99% 8.80% -1.81%
Return/Risk 1.51 0.97 0.54
Maximum Drawdown -18.48% -32.54% 14.06%

Growth of $10K

Drawdowns

Rolling 3-Year Correlation to S&P 500

Annual Returns

Annual 20/40/40 60/40
12/31/1990 12.81% 1.81%
12/31/1991 27.08% 24.77%
12/31/1992 8.91% 7.59%
12/31/1993 15.24% 9.99%
12/31/1994 -1.81% -0.33%
12/31/1995 35.05% 29.66%
12/31/1996 14.77% 14.97%
12/31/1997 24.69% 23.62%
12/31/1998 21.40% 20.99%
12/31/1999 7.16% 12.00%
12/31/2000 7.80% -1.00%
12/31/2001 2.39% -3.71%
12/31/2002 2.03% -9.82%
12/31/2003 17.24% 18.48%
12/31/2004 8.92% 8.30%
12/31/2005 4.49% 4.00%
12/31/2006 10.85% 11.12%
12/31/2007 10.21% 6.22%
12/31/2008 -9.29% -22.06%
12/31/2009 15.64% 18.40%
12/31/2010 13.89% 12.13%
12/31/2011 6.53% 4.69%
12/31/2012 9.38% 11.31%
12/31/2013 9.80% 17.56%
12/31/2014 12.64% 10.62%
12/31/2015 0.82% 1.28%
12/31/2016 6.66% 8.31%
12/31/2017 11.55% 14.21%
12/31/2018 -2.39% -2.35%

Rolling 3-Year Returns

20/40/40 60/40
Number of 3-Year Periods 322 322
Average 3-Year Annualized Return 10.34% 8.61%
Best 3-Year Annualized Return 24.56% 23.01%
Worst 3-Year Annualized Return 0.00% -7.24%
Standard Deviation of 3-Year Periods 5.03% 6.41%
Profitable Periods (%) 100.00% 86.65%
Average Profitable Period Return (Annualized) 10.34% 10.33%
Unprofitable Periods (%) 0.00% 13.35%
Average Unprofitable Period Return (Annualized) N/A -2.50%

Rolling 5-Year Returns

20/40/40 60/40
Number of 5-Year Periods 298 298
Average 5-Year Annualized Return 10.29% 8.45%
Best 5-Year Annualized Return 20.33% 20.09%
Worst 5-Year Annualized Return 2.07% -2.26%
Standard Deviation of 5-Year Periods 4.08% 5.08%
Profitable Periods (%) 100.00% 98.99%
Average Profitable Period Return (Annualized) 10.29% 8.55%
Unprofitable Periods (%) 0.00% 1.01%
Average Unprofitable Period Return (Annualized) N/A -1.33%

10/40/50 Allocation

Notional Exposure per $1.00 Invested

Historical Investment Outcome for 10/40/50 Portfolio compared to 60/40 Portfolio:

S&P 500 Total Return Index (Equities), Bloomberg Barclays US Aggregate Bond Total Return Index (Fixed Income),  Barclay CTA Index (Managed Futures) monthly return data from December 1989 to September 2019. Blended portfolios rebalanced monthly. Source: Bloomberg LP.

10/40/50 60/40 Diff
Cumulative Return 2098% 1026% 1072.29%
Annualized Return 11.04% 8.55% 2.49%
Standard Deviation 6.83% 8.80% -1.97%
Return/Risk 1.62 0.97 0.64
Maximum Drawdown -15.39% -32.54% 17.15%

Growth of $10K

Drawdowns

Rolling 3-Year Correlation to S&P 500

Annual Returns

Date 10/40/50 60/40
12/31/1990 15.68% 1.81%
12/31/1991 27.62% 24.77%
12/31/1992 9.22% 7.59%
12/31/1993 16.57% 9.99%
12/31/1994 -2.19% -0.33%
12/31/1995 36.41% 29.66%
12/31/1996 14.70% 14.97%
12/31/1997 24.95% 23.62%
12/31/1998 21.43% 20.99%
12/31/1999 5.97% 12.00%
12/31/2000 10.08% -1.00%
12/31/2001 3.91% -3.71%
12/31/2002 5.12% -9.82%
12/31/2003 16.91% 18.48%
12/31/2004 9.06% 8.30%
12/31/2005 4.61% 4.00%
12/31/2006 10.78% 11.12%
12/31/2007 11.22% 6.22%
12/31/2008 -5.85% -22.06%
12/31/2009 14.94% 18.40%
12/31/2010 14.31% 12.13%
12/31/2011 6.97% 4.69%
12/31/2012 8.88% 11.31%
12/31/2013 7.93% 17.56%
12/31/2014 13.15% 10.62%
12/31/2015 0.69% 1.28%
12/31/2016 6.23% 8.31%
12/31/2017 10.90% 14.21%
12/31/2018 -2.41% -2.35%

Rolling 3-Year Returns

10/40/50 60/40
Number of 3-Year Periods 322 322
Average 3-Year Annualized Return 10.76% 8.61%
Best 3-Year Annualized Return 25.04% 23.01%
Worst 3-Year Annualized Return 1.87% -7.24%
Standard Deviation of 3-Year Periods 4.91% 6.41%
Profitable Periods (%) 100.00% 86.65%
Average Profitable Period Return (Annualized) 10.76% 10.33%
Unprofitable Periods (%) 0.00% 13.35%
Average Unprofitable Period Return (Annualized) N/A -2.50%

Rolling 5-Year Returns

10/40/50 60/40
Number of 5-Year Periods 298 298
Average 5-Year Annualized Return 10.74% 8.45%
Best 5-Year Annualized Return 20.57% 20.09%
Worst 5-Year Annualized Return 3.16% -2.26%
Standard Deviation of 5-Year Periods 3.99% 5.08%
Profitable Periods (%) 100.00% 98.99%
Average Profitable Period Return (Annualized) 10.74% 8.55%
Unprofitable Periods (%) 0.00% 1.01%
Average Unprofitable Period Return (Annualized) N/A -1.33%

As with any investment strategy, there is no guarantee that an asset class will continue to perform similarly in the future. Investment markets are unpredictable and there will be certain market conditions where a strategy will not meet its investment objective and will lose money. Returns will vary and you could lose money investing in managed futures and those losses could be significant. Please note that investing in derivatives (which include options, futures and other transactions) may give rise to leverage risk (which can increase volatility) and can have a significant impact on performance. Investing in the commodities markets may subject managed futures to greater volatility than investments in traditional securities.  Using derivatives like futures and options to increase long and short exposure creates leverage, which can magnify potential for gain or loss and, therefore, amplify the effects of market volatility.

The indices shown are for informational purposes only and are not reflective of any investment. As it is not possible to invest in the indices, the data shown does not reflect or compare features of an actual investment, such as its objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, or tax features. Past performance is no guarantee of future results.

Glossary of Terms

Barclay CTA Index: A leading industry benchmark of representative performance of commodity trading advisors. The Index is equally weighted and rebalanced at the beginning of each year. The index only publishes monthly returns.

Bloomberg Barclays US Aggregate Bond Index: A broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market.

Drawdown: A measure of the peak to valley loss of an investment for a stated time period. An investment does not recover from a drawdown until it surpasses the previous peak.

S&P 500 Index: A market capitalization-weighted index that is used to represent the U.S. large-cap stock market. The Total Return (TR) Index reflects the effects of dividend reinvestment.

Standard Deviation: A statistical measure of how consistent returns are over time; a higher standard deviation indicates historically more volatility.

7200-NLD-10/14/2019

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