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.

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.

Source: Catalyst Capital Advisors LLC and Bloomberg LP.

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.

Source: Catalyst Capital Advisors LLC and Bloomberg LP.

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.

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.

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 March 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 2.29%, 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