What Investors Can Do When Equities Get Ahead of Themselves

Leveraging a balanced risk strategy like MBXIX as a path to less volatility.

November 2024

Even before the post-election rally, Wall Street was growing increasingly worried that the stock market was starting to get ahead of itself. In October, Goldman Sachs strategists cautioned investors to be prepared for stock market returns during the next decade that are toward the lower end of their typical performance distribution.

As of November 11, 2024, the cyclically adjusted price-to-earnings ratio (or CAPE) hit a staggering 38.12x. Looking at these valuation levels going back to 1900, there has only been one instance where the S&P 500 produced a positive return in the following 10 years. In July 1998, the CAPE hit 38.26x and the 10-year return after was 0.84% annualized. There is good reason to be concerned.

S&P 500 market capitalization as % of GDP (the “Buffett Indicator”) reached a peak level at +172%¹

¹Bloomberg LP and U.S. Bureau of Economic Analysis. Based on quarterly data from 6/30/2000 to 9/30/2024.

S&P 500 10-year returns averaged -2.75% annualized following valuations like in November 2024²

U.S. stock market trailing 15-year return in relation to returns going back to 1871³

^{2, 3}Robert J. Shiller. US Stock Price, Earnings and Dividends as well as Interest Rates and Cyclically Adjusted Price Earnings Ratio (CAPE) since 1871. Data as of November 11, 2024.

Look to a balanced risk strategy for a solution to concerns about stock market valuations

While the indicators are suggesting lower returns for the long term, it is anybody’s guess as to how far the stock market can go before, or if, it turns. In other words, getting out of the market may mean potentially missing out on some upside. A balanced risk strategy (or hybrid strategy) is a potentially compelling solution for investors trying to balance stretched valuations and the desire to avoid missing out on potential market upside. Balanced risk strategies typically combine alternative and traditional investment strategies within one product wrapper, creating a product with the potential to play offense and defense.

A compelling example of such a strategy is the Catalyst/Millburn Hedge Strategy Fund (MBXIX). Whether looking to complement 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, and MBXIX has done so historically since inception in 1997.

The offense + defense approach of MBXIX allowed it to outperform the S&P 500 TR Index⁴

Past performance does not guarantee future results.

⁴Bloomberg LP and Catalyst Capital Advisors LLC. Based on monthly return data from 12/31/1996 to 09/30/2024. Presented in logarithmic scale.

For investors concerned about stock market returns in the coming 10 years, a great place to start in evaluating alternatives is to look at rolling 10-year returns. In analyzing the S&P 500 TR Index back to the inception date of MBXIX, one can see that the S&P 500 TR Index had negative 10-year rolling returns 11% of the time, making the prospects of another negative 10-year return seem not so unlikely. On the other hand, MBXIX was consistently positive.

The worst return was +4.94% annualized, a respectable return for long-term investment objectives. There were periods of equity market exuberance where MBXIX did not keep up, but on average, the historically less volatile balanced risk strategy approach resulted in meaningfully higher average returns for the rolling 10-year periods.

MBXIX demonstrated its ability to produce positive and consistent rolling 10-year returns⁵

⁵Bloomberg LP and Catalyst Capital Advisors LLC. Based on monthly return data from 12/31/1996 to 09/30/2024. Presented in logarithmic scale.

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 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.The Fund’s gross expense ratios are 2.28%, 3.03%, and 2.03% for Class A, C, and I, respectively.

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.).

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 turnover 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.

Investors cannot directly invest in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.

There is no guarantee that any investment strategy will achieve its objectives, generate profits, or avoid losses.

Data as of quarter end: 2024-09-30T00:00:00
Annualized if greater than a year

Share Class	1 Month	3 Months	6 Months	YTD	1 Year	3 Years Annualized	5 Years Annualized	10 Years Annualized	Since Inception Annualized
Class I	-1.12%	-5.11%	-1.45%	8.41%	2.32%	7.14%	7.49%	8.31%	10.20%
Class A	-1.13%	-5.15%	-1.54%	8.20%	2.06%	6.89%	7.23%	N/A	8.01%
Class C	-1.19%	-5.34%	-1.93%	7.60%	1.30%	6.08%	6.42%	N/A	7.20%
Class C-1	-1.20%	-5.35%	-1.95%	7.59%	1.30%	6.09%	N/A	N/A	10.81%
Class A w/Sales Load	-6.82%	-10.62%	-7.21%	1.97%	-3.81%	4.81%	5.97%	N/A	7.28%

Definitions:

The CAPE ratio is a valuation measure that uses real earnings per share over a 10-year period to provide a smoother display of fluctuations in corporate
profits.

The S&P 500 is a market capitalization-weighted index that is used to represent the U.S. large-cap stock market.

A long position refers to the purchase of an asset with the expectation it will increase in value, while a short position is a trading technique in which
a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. A long/short portfolio combines both of these
positions.

A bear market is a financial market experiencing prolonged price declines, generally of 20% or more.

A bull market is a financial market in which prices are rising or are expected to rise over an extended period of time.

The S&P 500 Total Return Index is a total return index that reflects both changes in the prices of stocks in the S&P 500 Index as well
as the reinvestment of the dividend income from its underlying stocks.

Volatility is a statistical measure of dispersion of returns for a specific market index or security.

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