Why Allocate at Least 20% to a Strategy Designed to Play Both Offense and Defense

By Michael Schoonover | March 9, 2023

Differentiating the start of a bull market from a bear market rally can be a difficult task. 2022 spared few portfolios with both stocks and bonds dipping into bear market territory. In January of 2023, many investors loaded up on riskier stocks and long duration bonds as they were rallying, just in time to get crushed in February.

Nobody really knows with certainty where the market will go. Rather than time the market, investors could allocate at least 20% to a strategy that is designed to thrive over the long-term in both bear and bull markets by playing both offense and defense in the same portfolio, like the Catalyst/Millburn Hedge Strategy Fund (MBXIX).

By Playing Offense and Defense, MBXIX Has Thrived in Both Bull and Bear Markets…

Catalyst Capital Advisors LLC and Bloomberg LP. Annual return data as of 12/31/2022. 60/40 Portfolio represented by 60% allocation to the S&P 500 TR Index and 40% allocation to the Bloomberg Agg TR Index (rebalanced monthly).

Past performance is not indicative of future results.

… Resulting in long-term outperformance versus the S&P 500 and a 60/40 Portfolio

Source: Catalyst Capital Advisors LLC and Bloomberg LP. Data as of 02/28/2023. 60/40 Portfolio represented by 60% allocation to the S&P 500 TR Index and 40% allocation to the Bloomberg Agg TR Index (rebalanced monthly). Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses, or sales charges. Past performance is no guarantee of future results.

MBXIX’s strategy combines two distinct components. During a structural bear market, the Fund’s futures component has the potential to play defense and produce returns that have historically offset any losses from the offensive equity component. This has been the case for all structural bear markets since 1997 where MBXIX produced positive returns.

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).

MBXIX Delivered Positive Returns During Every Structural Bear Market SInce 1997

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

Download Fact Sheet

MBXIX MORE THAN DOUBLED THE LAST LOST DECADE FOR STOCKS AND IS OFF TO A STRONG START FOR A POTENTIAL NEW LOST DECADE.

The market outlook remains volatile with rising rates, inflation, and geopolitical risks abound. In fact, even many typically optimistic market strategists predict that the worst may not arrive until late 2023 or 2024. When you combine this with the fact that both equity valuations and bond yields are still far from historical averages, it looks like 2022 has potentially set the stage for a lost decade–a 10-year period where an asset class generates negative returns–for both stocks and bonds.

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. Losing 9% 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, MBXIX more than doubled by the end of 2009. If 2022 turns out to be the start of the new lost decade, MBXIX is off to a similarly strong trajectory.

MBXIX generated a +164% return during the last lost decade for the S&P 500 Index and is on a similar trajectory for the potentially new lost decade.

Source: Catalyst Capital Advisors LLC and Bloomberg LP. Data as of 02/28/2023. Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses, or sales charges. Past performance is no guarantee of future results.

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

Adding a strategy that can play offense and defense like MBXIX to a portfolio can be 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 and for future bull market environments.

The question for investors then comes down to how to allocate to a strategy like MBXIX. We have published various research on the topic over time, but our findings generally indicate that an approximately 20% allocation to alternatives has historically benefited investors. A common method has been 50/30/20, 50% to equities, 30% to bonds, and 20% to alternatives.

Using a 50/30/20 portfolio model with a strategy like MBXIX

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

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

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.

Download MBXIX Brochure

About the Author

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 December 31, 2022
Annualized if greater than a year

Share Class/Benchmark	1 Year	3 Years	5 Years	10 Years	Since Inception*
Class I	7.72	7.81	6.89	9.05	10.61
S&P 500 TR Index	-18.11	7.66	9.42	12.56	8.53
ML 3 Month T-Bill Index	1.47	0.73	1.27	0.77	2.04
Class A	7.46	7.54	6.63	n/a	9.02
Class C	6.67	6.74	5.83	n/a	8.20
S&P 500 TR Index	-18.11	7.66	9.42	n/a	11.37
ML 3 Month T-Bill Index	1.47	0.73	1.27	n/a	1.07
Class A w/Sales Charge	1.27	5.44	5.38	n/a	8.10

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 2.27%, 3.02%, and 2.02%, respectively.

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.

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

Index definitions:

The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.

The S&P 500 TR Index is an index consisting of 500 U.S. equities and is a broad-based benchmark used as a measurement of US stock market performance.

The ML 3-Month T-Bill Index is an unmanaged index that measures returns of three-month U.S. Treasury Bills.

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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.

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