Catalyst Hedged Futures Strategy Fund 2015 Q1

Catalyst Hedged Futures Strategy Fund
HFXAX, HFXCX & HFXIX
2015 Q1
About Catalyst Funds
Intelligent Alternatives
We strive to provide innovative strategies to support financial advisors and their clients in meeting the
investment challenges of an ever-changing global market environment.
From our founding in 2006, Catalyst Funds set out to be decidedly different. We understood that the
market did not need another traditional family of mutual funds. At Catalyst, we endeavor to offer
unique investment products to meet the needs of discerning financial advisors and their clients. We
offer a broad range of distinctive funds that offer specialized strategies seeking to produce income- and
equity-oriented returns while limiting risk and volatility. We offer these exclusive strategies through a
team of in-house portfolio managers and boutique institutional investment management partners.
Website: www.CatalystMF.com
Phone:
646-827-2761
E-mail:
[email protected]
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Catalyst Hedged Futures Strategy Fund Overview
 Invests in long and short option positions on the S&P 500 Index
 Strategy seeks to exploit the unique limited risk characteristics of options contracts
 Objective to preserve capital and provide consistent returns with low volatility relative to
equities, regardless of market direction
 The Fund’s strategy is driven by index and options volatility patterns
 The strategy does not incorporate a directional bias to generate returns
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Investment Strategy: Seeking Multiple Ways to Generate Returns
 Volatility Trading -- the Fund may enter options
positions designed to hedge or seek profit from
an increase in stock index volatility
 Upside Index Price Exposure -- the Fund may
enter options spreads in an attempt to profit
from an established price trend
Volatility
Trading
Upside
Price
Exposure
Option
Premium
Collection
 Option Premium Collection techniques are used
to mitigate options time decay and to take partial
profits on open positions; however, it is not a
primary source of return for the fund
There is no guarantee that any investment strategy will achieve its objectives, generate
profits or avoid losses.
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Investment Strategy: Opportunity Analysis
Macro View
- Is market overbought or oversold?
- Is volatility historically high or low?
- Is there an established uptrend in place?
Rising Market
-Evaluate Butterfly & Ratio
Spreads
Rising Volatility
-Evaluate Diagonal Calendar
Spreads
There is no guarantee
that any investment
strategy will achieve its
objectives, generate
profits or avoid losses.
Trade
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Investment Strategy: Trading Methodology
 The majority of the strategy is systematic in determining what, where and when to trade
 Manager’s discretion is used in determining precisely when to enter a trade, how and
when to adjust the portfolio structure and take profits, and in technical analysis
interpretation
 Position holding period is driven by options volatility models; typical holding period
ranges from 60 to 120 days allowing the Fund to be nimble in response to changing
market conditions
 Risk control is an important part of the strategy; risk metrics are also monitored by an
external risk manager
There is no guarantee that any investment strategy will achieve its objectives, generate
profits or avoid losses.
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Investment Strategy: Daily Investment Process
Stress Fund for Risk
Trade
Analyze New Trades
with Existing
Positions
Make Adjustments
if Needed
Evaluate Trade
Opportunities
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HFXAX Performance Characteristics
 Fund performance has exhibited a low, negative correlation to the S&P 500 index (R2 of
0.07)
 Performance has exhibited a strong positive relationship with equity market volatility
 Best environment: high market and options volatility; VIX>20. Example years: 2008, 2011
 Worst environment: low options volatility, large market moves (normally up); VIX<15.
Examples: 2013, Q4 2014
Past performance does not guarantee future results and there is no assurance that the Fund
will achieve its investment objective.
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Risk Management
 Diversification is not the same as Risk Management - Diversification seeks to allocate
capital across non correlated assets to dilute the impact of a large loss on a portfolio. Risk
management seeks to actively avoid large losses.
 The Fund employs a distinct Risk Management Strategy – In addition to the strategy and
tactics we use to earn profits, we use a specific set of rules and tactics focused on
limiting losses. This is not common among public mutual funds. Our Risk Management
includes:
• Optimized position sizing
• Trade entry scaling
• Diversification of time and price exposure
• Dynamic hedging of option structures
• Limiting overall portfolio risk
There is no guarantee that any investment strategy will achieve its objectives, generate
profits or avoid losses.
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Other Important Fund Attributes
 Diversification – Fund returns have exhibited a low correlation to the S&P 500. But the
nature of options pricing results in an increase in potential returns as equity market
volatility increases.
 Liquidity - The S&P 500 Futures market is among the most liquid equity index markets in
the world. Roughly 50% of the Fund’s capital is typically required as collateral by our
primary broker, providing ample daily shareholder liquidity.
 No Financial Leverage - No borrowing is utilized to increase the size of the fund’s
portfolio. The number and size of positions are set at a level proportional to the fund’s
capital and consistent with the fund’s objectives of limiting volatility and drawdowns.
 Tax Treatment – All of the Fund’s holdings are classified as “Section 1256 Contracts”. By
IRS code, this means that gains and losses are reported as 60% long term and 40% short
term, regardless of holding period.
There is no guarantee that any investment strategy will achieve its objectives, generate
profits or avoid losses.
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Key Reasons to Invest
The Fund Seeks to Provide:
 Consistent returns from S&P 500 options strategies that are structured for profit
potential across a broad range of market environments.
 Unique diversification from a low correlation to equity indexes and the ability to
outperform in volatile market conditions.
 A Risk Management Strategy explicitly focused on limiting losses by hedging individual
positions at initiation, ongoing adjustment based on well-defined risk parameters, and
aggregate portfolio stop loss measures.
There is no guarantee that any investment strategy will achieve its objectives, generate
profits or avoid losses.
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Performance as of March 31, 2015
 Growth of $10,000 for HFXAX and S&P 500 TR Index
$40,000
$30,000
$20,000
$10,000
$0
2005
2006
2007
2008
2009
HFXAX
2010
S&P 500 TR
2011
2012
2012
11%
16%
2013
-3%
32%
2013
2014
 Annual Returns for HFXAX and S&P 500 TR Index
100%
50%
0%
-50%
HFXAX
S&P 500
2006
53%
16%
2007
4%
5%
2008
50%
-37%
2009
12%
26%
2010
10%
15%
2011
16%
2%
2014
8%
14%
2015 YTD
4%
1%
Past performance is not a guarantee of future results.
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Standard Performance as of March 31, 2015
 Annualized Return Performance
1 Year
3 Years
5 Years
Since Inception*
Class A without Sales Charge (HFXAX)
1.66%
5.16%
8.23%
16.93%
Class A with Sales Charge
-4.15%
3.12%
6.96%
16.20%
S&P 500 TR Index
12.73%
16.11%
14.47%
7.64%
*Inception: 12/15/2005.
There is no assurance that the Fund will achieve its investment objective.
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. The Fund’s total
annual operating expenses are estimated to be 2.23%, 2.98% and 1.98% for Class A, C, and I shares respectively. To
request most recent performance or obtain a prospectus, please call 1-866-447-4228 or go to www.CatalystMF.com.
Performance shown before September 2013 is for the Fund's predecessor limited liability company (Harbor Assets, LLC).
The prior performance is net of management fees and other expenses including the effect of the performance fee (see
full disclosure on page 2). 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.
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Performance Statistics as of March 31, 2015
 Modern Portfolio Theory Statistics vs. S&P 500 TR Index Since Inception
Statistic
HFXAX
S&P 500 TR Index
Alpha
17.18
0.00
Beta
-0.26
1.00
R-squared
0.07
1.00
 HFXAX Has Generated More Consistent Positive Returns than the S&P 500 TR Index
% Months with Positive Returns
Catalyst Hedged Futures Strategy Fund
78.6%
S&P 500 Total Return Index
65.2%
Past performance is not a guarantee of future results.
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Appendix: HFXAX Fund Background
 Inception: December, 2005. Non public fund regulated by the CFTC.
 Conversion*: September 2013. ‘40 Act Mutual Fund regulated by the SEC
 Management: Managed by Edward Walczak since inception
• Founder of Harbor Financial LLC, a Commodity Trading Advisor registered with the
National Futures Association and Portfolio Manager of Catalyst Capital Advisors LLC
• B.A. in Physics and Economics from Middlebury College
• MBA from the Harvard University Graduate School of Business
 Category: Managed Futures
* The Fund’s trading instruments, strategy, and objectives, have remained the same before
and after this conversion.
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Glossary
Alpha: A measure of the difference between a fund's actual returns and its expected performance,
given its level of risk as measured by beta.
Beta: A measure of a fund's sensitivity to market movements.
Bull Call Spread: An option strategy that involves purchasing call options at a specific strike price while
also selling the same number of calls of the same asset and expiration date but at a higher strike price.
A bull call spread is used when moderate price rise in the price of the underlying asset is expected. The
maximum profit is the difference in strike prices of the long and short options, less the net cost of the
options.
Butterfly Spread: A neutral option strategy using four option contracts with the same expiration but
three different strike prices to create a range of prices that the strategy can profit from. The trader sells
two option contracts at the middle strike and buys one option contract at a lower strike and one at a
higher strike. Both puts and calls can be used.
Calendar Spread: An options or futures spread established by simultaneously entering a long and short
position on the same underlying asset but with different delivery months.
Correlation: A statistical measure of how two securities move in relation to each other.
R-squared: A measure of the relationship between a portfolio and its benchmark.
Ratio Spread: An options strategy in which an investor simultaneously holds an unequal number of long
and short positions. A commonly used ratio is two short options for every option purchased.
S&P 500 Total Return Index is considered to be generally representative of the U.S. large capitalization
stock market as a whole.
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Disclosures
Investors should carefully consider the investment objectives, risks, charges and expenses of the
Catalyst Funds. This and other important information about the Fund is 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. Catalyst Capital Advisors, LLC is not affiliated with Northern Lights
Distributors, LLC.
Mutual Funds involve risk including possible loss of principal. 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. 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.
4245-NLD-4/15/2015
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