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A Guide to AlternativesA Resource Guide for Client Conversations
2
Alternative investing – Special Considerations
Investors considering investing in alternatives (“alts”) should be aware of the unique characteristics and risks of these investments.
Alternative mutual funds may hold non-traditional investments and employ more complex trading strategies than traditional mutual
funds.
Alternative funds might invest in assets such as foreign securities, commodities, futures, small-cap companies, high yield bonds
(also known as junk bonds),exchange-traded products and other non-traditional type products as compared to traditional stocks,
bonds and cash. Funds that invest in these types of assets may be subject to higher risks, more volatility and less liquidity.
These funds also may employ complex strategies, including hedging and leveraging through derivatives and short selling including but
not limited to:
Short-Selling Risk - The potential loss from a short sale is theoretically unlimited since the appreciation of the underlying asset also is
theoretically unlimited.
Derivative Risk - Derivatives include instruments and contracts that are based on and valued in relation to one or more underlying
securities, financial benchmarks, indices, or other reference obligations or measures of value. Major types of derivatives include
futures, options, swaps and forward contracts. Depending on how the Fund uses derivatives and the relationship between the market
value of the derivative and the underlying instrument, the use of derivatives could increase or decrease the Fund’s exposure to the
risks of the underlying instrument. Using derivatives can have a leveraging effect and increase fund volatility.
Leveraging Risk - Certain Fund transactions, including entering into futures contracts and taking short positions in financial
instruments, may give rise to a form of leverage. Leverage can magnify the effects of changes in the value of the Fund’s investments
and make the Fund morevolatile
Investors should fully understand the strategies and be able to bear the risks of any alternative mutual fund they are considering
and how it might fit into their overall portfolio before investing. Further information can be found in the Fund’s prospectus.
All investing involves risk including the possible loss of principal.
Risk Considerations
2.69%
3
Today’s Market Environment
S&P 500 Index
10-Year US Treasury
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/94-12/31/19. U.S. Treasuries are guaranteed by the full faith and credit of the U.S.
Government. Mutual Funds are not guaranteed by the U.S. Government or any other governmental agency and are subject to risks including possible loss of principal. Indexes are
unmanaged and it is not possible to invest in one directly.
Stocks are at All-Time Highs While Interest Rates remain Close to All-Time LowsOver the past 25 years, stock rallies have been followed by major corrections. Is your portfolio prepared?
Additionally, with near-historic low interest rates, how will traditional bond investments generate future returns?
2.69%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2019
Yie
ld
Inde
x C
lose
Pri
ce
$3,231
4
0
5
10
15
20
25
30
35
40
45
50
1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012 2018
Data from 12/31/52-12/31/19. Source: multpl.com. Shiller P/E is also known as CAPE (Cyclically-Adjusted Price to Earnings Ratio). It is defined by the average of ten years of
earnings (moving average), adjusted for inflation. Price-Earnings Ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of
that company’s earnings. See definitions on pages 28-32.
Stocks Have Not Been A Bargain
Shiller Price-Earnings (P/E) Ratio for the S&P 500Cyclically-Adjusted P/E Ratios are 35% higher than the long-term average, suggesting that market valuations are stretched.
Pri
ce
-Earn
ing
sR
atio
Shiller Price-Earnings Ratio Long-Term Average
Current P/E Level
30.93
Long-Term Average
20.07
5
-100%
0%
100%
200%
300%
400%
500%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Cu
mu
lati
ve R
etu
rn
Cumulative GDP Growth
1950-1953
1954-1957
1958-1960
1961-1969
1971-1973
1975-1980
1980-1981
1983-1990
1991-2001
2002-2008
2009-Current
The market is more expensive in this expansion than any other in the past.
Market Return vs. GDP Growth
Sources: Fred, NBER, Analytic Investors.
For illustrative purposes only.6
Past performance is not indicative of future results. U.S. Aggregate Bond Index is represented by the Bloomberg Barclays US Aggregate Bond Index. Source: Bloomberg Calculations/361
Capital. Data from 01/31/78-02/28/20. See definitions on pages 28-32.
Future Fixed Income ReturnsAs fixed income returns have historically been highly correlated to yields, current yield trends suggest that future fixed income
returns may not be as compelling as they have been in the past for investors.
1.68%
3.58%
0%
5%
10%
15%
20%
25%
Starting Yield vs. 5-Yr Forward Annualized Return (U.S. Aggregate Bond Index)
Starting Yield 5-Yr Fwd Return
Fixed Income May Not Be a Long-Term Solution
60/40 Portfolio’s Sharpe Ratio PerformanceOver the last 40 years, the average Sharpe ratio of a traditional 60/40 portfolio has been 0.61. Since the Financial Crisis, the Sharpe
ratio for the same portfolio has been nearly three times higher than the historical average, at 1.29. Investors need to decide whether
it’s likely to maintain its elevated level for the next decade, or will it revert back towards the long-term average.
A 60/40 Portfolio’s Sharpe Ratio Performance
Past performance is not indicative of future results. Source: Morningstar. 60% is represented by the S&P 500 Index. 40% is represented by the Bloomberg Barclays US
Aggregate Bond Index. See definitions on pages 28-32.
1.29
0.61
(0.40)
(0.20)
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
12
/19
87
11
/19
88
10
/198
9
9/1
99
0
8/1
99
1
7/1
99
2
6/1
99
3
5/1
994
4/1
99
5
3/1
99
6
2/1
99
7
1/1
99
8
12
/19
98
11
/19
99
10
/20
00
9/2
00
1
8/2
00
2
7/2
00
3
6/2
00
4
5/2
005
4/2
00
6
3/2
00
7
2/2
00
8
1/2
00
9
12
/200
9
11
/20
10
10
/20
11
9/2
01
2
8/2
01
3
7/2
01
4
6/2
01
5
5/2
016
4/2
01
7
3/2
01
8
2/2
01
9
Rolling Ten Year Sharpe Ratio 60/40 Portfolio
8
9
The Investing Landscape Today
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/15-12/31/19 and 01/01/99-12/31/19.
Global Macro is represented by Credit Suisse Global Macro Index, Multi-Strategy by Credit Suisse Multi-Strategy Index, Traditional 60/40 Allocation by 60% of the S&P 500 and 40%
of the Barclay’s Aggregate Bond Index, US Stocks by S&P 500, Global Stocks by MSCI World Index, Bonds by Barclays Aggregate Bond Index, Equity Market Neutral by Credit
Suisse Equity Market Neutral Index, Long/Short Equity by Credit Suisse Long/Short Equity Hedge Fund Index, Managed Futures by Credit Suisse Managed Futures Index,
Commodities by Dow Jones Commodity Index. It is not possible to invest directly in an index. See definitions on pages 28-32.
20-Year Time Horizon
1999 - 2019
5-Year Time Horizon
2015 - 2019
Bonds
Global Stocks
U.S. Stocks
60/40 Portfolio
Commodities
Global Macro
Long/Short Equity
Managed Futures
Equity Market Neutral
Multi-Strategy
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
An
nu
alize
d R
etu
rn
Standard Deviation (Volatility)
Bonds
Global Stocks
U.S. Stocks60/40 Portfolio
Commodities
Global Macro
Long/Short Equity
Managed Futures
Equity Market Neutral
Multi-Strategy
0%
2%
4%
6%
8%
10%
12%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Ann
ua
lized
Retu
rn
Standard Deviation (Volatility)
With the sudden volatility in early 2020 and increasing uncertainty about the future, the last five years may not be representative
of future expectations. Long-term averages may be a better guide than short-term performance when constructing a resilient
portfolio for the long term.
A Risk to Retirement
The Amount of Time and Return Needed for a $500,000 Portfolio to Recover from a 20% Decline in the Market Those nearing retirement may not have time to rebound from significant losses.
The annual returns shown of 3%, 7% and 11% are hypothetical to demonstrate how long it may take to recover losses over time.
The returns do not represent or predict the performance of any fund.
-20%
3% Annually8 Years7% Annually
4 Years
11% Annually2.5 Years
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
Peak 0 1 2 3 4 5 6 7 8
Number of Years to Recover
10
The annual returns shown of 3%, 7% and 11% are hypothetical to demonstrate how long it may take to recover losses over time.
The returns do not represent or predict the performance of any fund.
It Can Take Years to Recover from a Market Downturn
The Amount of Time and Return Needed for a $500,000 Portfolio to Recover from a 40% Decline in the MarketThose nearing retirement may not have time to recover their savings from significant losses suffered in a market decline—
underscoring the importance of incorporating strategies that seek to mitigate downside risk.
3% Annually18 Years
-40%
7% Annually8 Years
11% Annually5 Years
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
Peak 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Number of Years to Recover
11
12
Aligning Investor Objectives
Objective Liquid Alternatives
Diversification• Multi-Manager
• Managed Futures
Hedged Growth • Long/Short Equity
Reduce Volatility
• Long/Short Equity
• Equity Market Neutral
• Multi-Manager
Truncate Losses• Managed Futures
• Equity Market Neutral
Reduce Interest Rate Sensitivity
• Nontraditional Bond
• Equity Market Neutral
• Multi-Manager
• Long/Short Credit
The Role of Alternatives in Investor PortfoliosAlternatives can help investors achieve a myriad of investment objectives.
Investors considering investing in alternatives should be aware of the unique characteristics and risks of these investments. Alternative mutual funds may hold non-traditional
investments and employ more complex trading strategies than traditional mutual funds. Alternative funds might invest in assets such as foreign securities, commodities, futures,
small-cap companies, high yield bonds (also known as junk bonds),exchange-traded products and other non-traditional type products as compared to traditional stocks, bonds
and cash. Funds that invest in these types of assets may be subject to higher risks, more volatility and less liquidity.
13
Seek Growth while Managing Volatility
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/15-12/31/19 and 07/01/00-12/31/19 (earliest common inception). Alternatives are
represented by the Credit Suisse Hedge Fund Index, Stocks by the MSCI World Index, Bonds by the Barclays Aggregate Bond Index and Cash by the Bank of America Merrill Lynch
0-3 Month US Treasury Bill. It is not possible to invest directly in an index. Annualized volatility is measured by annualized standard deviation.See definitions on pages 28-32.
Prepare for Rising VolatilityWhile volatility was tempered the last five years, when you look over a longer period of time you see volatility’s full effect on returns.
With uncertainty on the rise, investors may need to find more effective strategies to achieve long-term growth while managing
volatility.
20-Year Time Horizon
2000 - 2019
5-Year Time Horizon
2015 - 2019
2.65%
8.74%
3.05%
1.09%
3.47%
11.68%
3.06%
0.27%
Alternatives Stocks Bonds Cash
Annualized Returns Annualized Volatility
5.45%4.76% 4.95%
1.67%
4.87%
14.90%
3.40%
0.53%
Alternatives Stocks Bonds Cash
Annualized Returns Annualized Volatility
14
Portfolio Resiliency during Bouts of Volatility
Past performance is not indicative of future results.
Source: Morningstar. Data from 12/31/96-12/31/19. Challenging periods for stocks and bonds are defined as equity bear markets and rising rate periods. Rising rate periods are the three
largest during this time period and bear markets are the two largest during this time period. Alternative are represented by the Credit Suisse Hedge Fund Index, stocks by the S&P 500
Index, and bonds by the Barclays Aggregate Bond Index. Data reflects average annualized outperformance of alternatives versus bonds during rising rate periods (10/31/98-01/31/00,
06/30/03-06/30/07, 07/31/12-12/31/13) and stocks during bear markets (08/31/00-09/30/02, 10/31/07-02/28/09). It is not possible to invest directly in an index. See definitions on pages 28-32.
Alternatives May Help Portfolios Become More ResilientAlternatives offer a differentiated source of returns and may offer an opportunity to outperform traditional assets when
investors need it most.
15%
28%
0%
5%
10%
15%
20%
25%
30%
vs. Bonds During Rising Rates vs. Stocks During Bear Markets
Average Alternative Outperformance During Challenging Periods for Stocks and Bonds
15
Alternatives: Returns Over the Years
Past performance is not indicative of future results. Source: Morningstar, HFR. Data from 01/01/04-12/31/19. Long/Short Equity is represented by Credit Suisse Long/Short Equity, PutWrite by CBOE S&P 500 PutWrite Index, Long/Short Credit by Morningstar MSCI Long/Short Credit Index, Global Macro by Credit Suisse Global Macro Index, BuyWrite by CBOE S&P 500 BuyWrite BXM Index, Multi Strategy by Credit Suisse Multi-Strategy Index, Merger Arbitrage by Credit Suisse ED Risk Arbitrage Index, US Bond by Barclays Aggregate Bond Index, Convertible Arbitrage by the Credit Suisse Convertible Arbitrage Index, Market Neutral by HRFI Equity Market Neutral Index, Managed Futures by Credit Suisse Managed Futures Index. It is not possible to invest directly in an index. See definitions on pages 28-32.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
MSCI World
Index
14.72%
Long/Short
Equity
9.68%
MSCI World
Index
20.07%
Global Macro
17.36%
Managed
Futures
18.33%
Convertible
Arbitrage
47.35%
Global Macro
13.47%USBond
7.84%
MSCI World
Index
15.83%
MSCI World
Index
26.68%
Managed
Futures
18.37%
PutWrite
6.40%PutWrite
7.77%
MSCI World
Index
22.40%
Long/Short
Credit
2.91%
MSCI World
Index
27.67%
Long/Short
Equity
11.56%
MSCI World
Index
9.49%
PutWrite
15.16%
Long/Short
Equity
13.66%
USBond
5.24%
PutWrite
31.51%
Managed
Futures
12.22%
Global Macro
6.44%Multi Strategy
11.19%
Long/Short
Equity
17.73%
PutWrite
6.38%BuyWrite
5.24%
MSCI World
Index
7.51%
Long/Short
Equity
13.41%
Merger Arbitrage
0.17%BuyWrite
15.68%
PutWrite
9.48%Global Macro
9.25%Multi Strategy
14.54%Multi Strategy
10.10%Merger Arbitrage
-3.27%
MSCIWorld
Index
29.99%
MSCI World
Index
11.76%
PutWrite
6.17%
Long/Short
Credit
10.79%
BuyWrite
13.26%Multi Strategy
6.09%Market Neutral
4.19%BuyWrite
7.07%BuyWrite
13.00%USBond
0.01%PutWrite
13.96%
Long/Short
Credit
9.13%
Multi Strategy
7.54%
Long/Short
Equity
14.38%
PutWrite
9.51%Global Macro
-4.62%BuyWrite
25.91%
Convertible
Arbitrage
10.95%
BuyWrite
5.72%
Long/Short
Equity
8.21%
PutWrite
12.28%USBond
5.97%Multi Strategy
3.84%
Convertible
Arbitrage
6.60%
PutWrite
10.85%Global Macro
-0.11%
Long/Short
Equity
12.17%
Global Macro
8.49%PutWrite
6.71%
Convertible
Arbitrage
14.30%
MSCI World
Index
9.04%
Market Neutral
-5.97%
Long/Short
Credit
24.78%
Multi Strategy
9.29%
Multi Strategy
1.83%PutWrite
8.14%Multi Strategy
11.23%
BuyWrite
5.64%
Long/Short
Equity
3.55%
Long/Short
Credit
6.49%
Multi Strategy
6.83%Market Neutral
-0.98%Global Macro
10.38%
BuyWrite
8.30%
Market Neutral
6.07%Global Macro
13.53%Merger Arbitrage
8.77%
Long/Short
Credit
-19.21%
Multi Strategy
24.62%
Long/Short
Equity
9.28%
Convertible
Arbitrage
1.13%
Convertible
Arbitrage
7.82%
Market Neutral
6.27%
Long/Short
Equity
5.55%
Convertible
Arbitrage
0.81%
Merger Arbitrage
5.89%
Long/Short
Credit
6.42%
Multi Strategy
-1.00%
Managed
Futures
9.01%
Multi Strategy
7.53%
Long/Short
Credit
5.55%
BuyWrite
13.33%USBond
6.97%
Long/Short
Equity
-19.76%
Long/Short
Equity
19.47%
PutWrite
9.02%Merger Arbitrage
0.80%BuyWrite
5.20%
Convertible
Arbitrage
6.03%
MSCI World
Index
4.94%
Long/Short
Credit
0.56%
Multi Strategy
4.41%
Merger Arbitrage
5.80%
Convertible
Arbitrage
-2.26%
USBond
8.72%
Managed
Futures
5.97%
BuyWrite
4.25%
Long/Short
Credit
9.19%
BuyWrite
6.59%Multi Strategy
-23.63%
Merger
Arbitrage
12.00%
Long/Short
Credit
8.58%
Long/Short
Credit
-1.03%
Global Macro
4.58%Merger Arbitrage
4.89%
Long/Short
Credit
4.72%
USBond
0.55%Global Macro
3.58%
Convertible
Arbitrage
5.01%
Long/Short
Equity
-4.62%
Convertible
Arbitrage
8.15%
Merger Arbitrage
5.45%Merger Arbitrage
3.08%Merger Arbitrage
8.15%
Managed
Futures
6.01%
PutWrite
-26.77%Global Macro
11.55%USBond
6.54%
Market Neutral
-2.05%USBond
4.21%Global Macro
4.32%Global Macro
3.11%Merger Arbitrage
0.42%USBond
2.65%Market Neutral
4.78%
BuyWrite
-4.77%
Long/Short
Credit
7.94%
USBond
4.34%USBond
2.43%
Managed
Futures
8.05%
Market Neutral
5.19%BuyWrite
-28.65%USBond
5.93%BuyWrite
5.86%
Managed
Futures
-4.19%
Market Neutral
-2.95%
Long/Short
Credit
3.57%
Market Neutral
3.03%Global Macro
0.18%
Market Neutral
2.23%USBond
3.54%PutWrite
-5.93%Multi Strategy
7.25%
Market Neutral
4.10%
Managed
Futures
-0.11%
Market Neutral
7.10%
Convertible
Arbitrage
5.17%
Convertible
Arbitrage
-31.59%
Market Neutral
1.44%Merger Arbitrage
3.17%
MSCI World
Index
-5.54%
Merger
Arbitrage
2.82%
USBond
-2.02%
Merger
Arbitrage
-1.32%
MSCI World
Index
-0.87%
Long/Short
Equity
-3.43%
Managed
Futures
3.29%
Managed
Futures
-6.67%
Merger
Arbitrage
4.89%
Convertible
Arbitrage
1.98%
Convertible
Arbitrage
-2.55%
USBond
4.33%
Long/Short
Credit
3.50%
MSCIWorld
Index
-40.71%
Managed
Futures
-6.57%
Market Neutral
2.85%
Long/Short
Equity
-7.31%
Managed
Futures
-2.93%
Managed
Futures
-2.56%
Convertible
Arbitrage
-1.68%
Managed
Futures
-0.93%
Managed
Futures
-6.84%
Global Macro
2.14%
MSCIWorld
Index
-8.71%
Market Neutral
1.81%
Alternatives: Returns Over Different Time Periods
Past performance is not indicative of future results. Source: EurekaHedge.com. Data from 01/01/00-12/31/19. Arbitrage is represented by Eurekahedge Arbitrage Hedge
Fund Index, CTA/Managed Futures by Eurekahedge CTA/Managed Futures Hedge Fund Index, Fixed Income Hedge by Eurekahedge Fixed Income Hedge Fund, Long/Short
Equity by Eurekahedge Long Short Equities Hedge Fund Index, Macro by Eurekahedge Macro Hedge Fund Index, Market Neutral by Eurekahedge Equity Market Neutral Hedge
Fund Index and Multi-Strategy by Eurekahedge Multi-Strategy Hedge Fund Index. See definitions on pages 28-32.
Long-Term Return
01/00 - 12/19
Post Financial Crisis
03/09 - 12/19
Pre Financial Crisis
01/00 - 02/09
Asset Class ReturnStandard
DeviationReturn
Standard
DeviationReturn
Standard
Deviation
Arbitrage 6.77% 3.13% 6.14% 2.60% 7.52% 3.65%
CTA/Managed Futures 8.49% 6.48% 3.88% 4.72% 14.20% 7.83%
Fixed Income Hedge 7.55% 3.41% 7.69% 3.04% 7.39% 3.82%
Long/Short Equity 8.22% 6.96% 7.66% 6.19% 8.90% 7.80%
Macro 7.62% 3.84% 4.65% 2.91% 11.25% 4.53%
Market Neutral 3.33% 2.73% 2.48% 2.27% 4.34% 3.18%
Multi-Strategy 8.72% 4.32% 6.48% 3.86% 11.42% 4.72%
Average (of alts categories above) 7.28% 3.42% 5.59% 2.98% 9.33% 3.81%
S&P 500 Index 6.06% 14.51% 17.07% 12.82% -5.63% 15.70%
Barclays U.S. Aggregate Bond Index 5.03% 3.40% 4.13% 2.90% 6.11% 3.90%
60% S&P 500 Index | 40% Agg. Bond Index 5.94% 8.67% 11.96% 7.63% -0.75% 9.47%
Long-Term Risk-Adjusted ReturnsReturns for a 60/40 portfolio, and the S&P 500 Index, have been impressive over the most recent 10-year period, while alternatives
have lagged. However, if you look at longer market cycles you see that alternative strategies have provided positive risk-adjusted
returns over multiple market environments.
16
Long/Short Equity
18
Long/Short Equity: Styles
Market Neutral
• Minimal market exposure. Return generated by security selection both long and short.
Return goal is commonly T-bills plus 2-4%.
Hedged Equity
• Allows exposure to equity market at reduced risk levels as defined by beta, volatility, and
drawdown capture (downside capture). Return goal is market returns through a full market
cycle with disproportionate upside/downside capture.
Opportunistic
• Often tactical with both beta and exposure. These strategies can deploy leverage to gain excess
gross exposure; net exposure could be more than 1.0 as well.
See definitions on pages 28-32.
19
The Importance of Upside and Downside Capture
Minimizing the impact of market losses may be equally as important, if not more, than capturing 100% of market gains. That’s
because, the bigger the loss, the greater the return needed to get back to the original starting point. Incorporating hedged equity
strategies, such as Long/Short Equity, may help truncate drawdowns and reduce the long-term impact of market declines.
The blue line represents a hypothetical $10,000 investment in the S&P 500 Index (100% invested). The orange line represents a portfolio that participated in 60% of the S&P500’s gains, but experienced only 40% of the S&P 500's downside during market declines. Downside capture measures what percentage of the down market was captured by the manager. A down-market is defined as those periods (months or quarters) in which market return is less than zero. Upside capture measures what percentage of an up market was captured by the manager. Up Capture measures a manager's performance in up markets relative to the market (benchmark) itself. Volatility as measured by standard deviation. See definitions on pages 28-32.
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/99-12/31/19.
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Dec-9
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-08
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n-1
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n-1
7
Dec-1
7
Jun
-18
Dec-1
8
Ju
n-1
9
Dec-1
9
$41,43960% Upside
40% Downside
Capture of
S&P 500 Index
$32,421100% Capture
S&P 500 Index
28% Increase in Portfolio’s
Ending Value 50% Risk Reduction
(Volatility)
20
Hedged Equity Seeks to Mitigate Downside Risk
Past performance is not indicative of future results. Source: Morningstar. Data from 09/01/11-12/31/18. Monthly data returns for the MSCI World Index and the Morningstar
Long/Short Equity Category. *Drawdown shown is the greatest drawdown during the following MSCI World Index drawdown periods: 05/31/11-11/30/12, 06/30/15-11/30/16 and
02/28/18-12/31/18. See definitions on pages 28-32.
Three Worst Drawdowns 2010-2019This chart illustrates the three largest market drops during drawdown periods* and how the Morningstar Long/Short Equity
Category captured significantly less drawdown than the MSCI World Index.
September 2011 December 2018February 2016Combined Market
Drawdowns
-19.64%
-11.96%-13.42%
-38.75%
-9.82%
-7.91%
-9.70%
-25.01%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
MSCI World Index Morningstar Long/Short Equity Category
21
Reducing Stock Market Drawdowns
Investors may want to consider strategies that seek to minimize drawdowns to potentially better position investors to compound
returns when stocks recover. Smaller drawdowns also dampen the psychological impact of market losses and keep investors from
abandoning stocks at the wrong time.
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/00-12/31/19. See definitions on pages 28-32.
Dra
wdow
n
-60%
-50%
-40%
-30%
-20%
-10%
0%
Jan
-98
Jun
-98
Jan
-99
Jun
-99
Jan
-00
Jun
-00
Dec
-01
Jun
-01
Jan
-02
Jun
-02
Jan
-03
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-03
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-04
Jan
-05
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-05
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-08
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Jan
-11
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-11
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Credit Suisse Long/Short Equity Index MSCI World Index
22
Long/Short Equity in Down or Choppy Markets
Past performance is not indicative of future results. Source: Morningstar and Eurekahedge. Long/Short Equity is represented by Eurekahedge. The 60/40 portfolio is
represented by 60% S&P 500 Index and 40% Barclays Capital Aggregate Bond Index. Data from 01/01/00–03/31/20. Returns during periods represent average rolling 12-month
returns for each investment. See definitions on pages 28-32.
Value Added During Difficult Equity MarketsHedged equity strategies are expected to trail the S&P 500 Index during strong equity rallies and outperform in falling or choppy
markets. While the number of up market periods surpassed both the number of down and choppy periods over the last 20 years,
Long/Short Equity’s performance in difficult markets added significant value to a portfolio—outperforming on a cumulative basis
over the 20-year period vs. long-only equities.
-29.08%
-14.42%
-4.81%
5.77%
14.97%
27.22%
4.85%
-5.79%
5.85% 4.77% 4.65%
10.41%
16.74%
7.58%
23.29%20.27%
9.58%
-1.12%-4.57%
-10.48%
2.74%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
20% or more 10%-20% Down 0-10% Up 0-10% Up 10%-20% Up over 20%
Down Periods Choppy Periods Up Periods Average AnnualReturn
Rolling One-Year Returns (2000-2020) S&P 500 Index
Long/Short Equity
Difference
Up PeriodsChoppy PeriodsDown Periods
# of Periods 20 19 18 53 80 42
Managed Futures
24
Managed Futures: Styles
Trend Following
• Traditional trend followers typically use proprietary trading systems and establish long or short positions in
various futures markets. They often use intermediate or long-term signals to put on trades.
Counter Trend
• Short-term strategy that looks to take contrarian positions in markets seeking mean reversion.
Not opposite of trend following, just a very tight time frame.
Global Macro
• Otherwise known as relative strength models; they seek out areas of the market that are outperforming and
invest heavily in those exhibiting the most positive momentum.
See definitions on pages 28-32.
25
Portfolios with Uncorrelated Assets May Have
a Smoother Experience
Past performance is not indicative of future results. Source: Morningstar, StockCharts, stockcharts.com. Data from 04/01/07–12/31/19. Bonds is represented by Barclays
Aggregate Bond Index, Global Stocks by MSCI World Index, Managed Futures by Credit Suisse Managed Futures Index, Blended is represented by 33% of the Barclay’s Aggregate
Bond Index, 33% of the Credit Suisse Managed Futures Index, 33% of MSCI World Index. It is not possible to invest directly in an index. See definitions on pages 28-32.
Modern Portfolio Theory suggests an efficient way to invest over time is to build a portfolio comprised of multiple uncorrelated asset
classes. For investors looking for uncorrelated strategies, managed futures are one of the few alternatives that provide truly
uncorrelated exposure.
Liquid Alternatives
Categories (04/01/07 – 12/31/19)1 2 3 4 5 6 7 8
1 S&P 500 Index 1.00
2 Long-Short Equity 0.95 1.00
3 Managed Futures -0.10 -0.02 1.00
4 Market Neutral 0.30 0.46 0.10 1.00
5 Multialternative 0.92 0.89 -0.01 0.28 1.00
6 Multicurrency 0.42 0.45 -0.05 0.29 0.41 1.00
7 Nontraditional Bond 0.70 0.70 -0.23 0.19 0.82 0.37 1.00
8 Barclays US Aggregate Bond Index -0.01 -0.04 0.04 -0.06 0.16 0.07 0.16 1.00
26
Managed Futures Performance in Equity Crises
Past performance is not indicative of future results. Source: Morningstar, BarclayHedge, barclayhedge.com. Managed Futures is represented by Barclay BTOP50. Data from
04/01/07–12/31/18. See definitions on pages 28-32.
Uncorrelated Positive Returns During DrawdownsManaged Futures have historically provided an uncorrelated positive return during some of the most difficult times for equitymarkets
since 1987. While the past 10 years have been exceptionally strong for equities, managed futures have shown to be a valuable
component of diversified portfolios during market crises.
Period Event S&P 500 Barclay
BTOP50Difference
4Q 1987 Black Monday/Global Markets Crash -22.53% 16.88% 39.41%
3Q 1990 Iraq Invades Kuwait -13.74% 11.23% 24.97%
3Q 1998 Russia Defaults on Debt/LTCM Crisis -9.95% 10.57% 20.52%
4Q 2000 DotCom Bubble Bursts -7.82% 19.78% 27.61%
1Q 2001 Bear Market/Technology Bubble -11.86% 5.97% 17.83%
3Q 2001 World Trade Center & Pentagon Attacks -14.68% 4.12% 18.80%
2Q 2002 Bear Market/Technology Bubble -13.40% 8.51% 21.91%
3Q 2002 WorldCom Scandal -17.28% 9.42% 26.69%
Period Event S&P 500 Barclay
BTOP50Difference
1Q 2008 Credit Crisis/Commodity Prices Rally -9.44% 6.43% 15.88%
3Q 2008
Credit Crisis/Government Sponsored
Bailout -8.37% -4.11% 4.26%
4Q 2008 Bear Market/Global Financial Crisis -21.94% 9.14% 31.08%
1Q 2009 Bear Market/Global Financial Crisis -11.01% -1.75% 9.26%
2Q 2010 Sovereign Debt Crisis -11.43% -1.93% 9.49%
3Q 2011 Euro Debt Crisis -13.87% 1.63% 15.50%
4Q 2018 Trade War Concerns -13.52% -2.06% 11.46%
8.32% 10.21%5.99%
23.07%16.17%
-26.95%
-6.37%-11.93%
-26.18%
-51.04%-55%
-45%
-35%
-25%
-15%
-5%
5%
15%
25%
The Five Worst S&P 500 Index Drawdowns Since 1987
Managed Futures S&P 500 Index
8/87-11/87 5/90-10/90 6/98-8/98 8/00-9/02 10/07-2/09
27
Managed Futures
Managed Futures strategies can take advantage of directional trends, positive or negative, in nearly any asset type, inclusive of fixed
income, currency, equity and commodities markets. Different Managed Futures strategies have different aims. Some trend following
strategies seek to exploit longer-term market trends. Other strategies, such as counter-trend strategies, seek short-term trends to
capitalize on volatile markets with a lot of back-and-forth price movements.
The Diversification Benefits of Managed FuturesOver the last 18 years, the Managed Futures category has maintained a low correlation to most asset classes.
Data from 07/01/01-12/31/19. Source: Morningstar. Data is represented by the following sources: Managed Futures by the Credit Suisse Managed Futures Index, Foreign Equity by the MSCI ACWI, Domestic Equity by the S&P 500, Real Assets by the S&P GSCI, Fixed Income by the Barclays Aggregate Bond Index, and Cash by the FTSE 3-Month T-Bill Index.See definitions on pages 28-32.
Managed
Futures
Foreign
Equity
Domestic
Equity
Real
Assets
Fixed
IncomeCash
Managed Futures 1.00
Foreign Equity 0.09 1.00
Domestic Equity 0.08 0.95 1.00
Real Assets -0.01 0.56 0.48 1.00
Fixed Income 0.23 0.05 -0.01 -0.11 1.00
Cash 0.07 0.00 -0.06 0.07 0.04 1.00
28
Additional Strategies
Long/Short Equity
Long/short equity is an investing strategy of taking long positions in stocks that are expected to appreciate and short positions in stocks that are expected to decline.
A Long/Short Equity strategy seeks to minimize market exposure, while profiting from stock gains in the long positions, along with price declines in the short
positions. Although this may not always be the case, the strategy should be profitable on a net basis. The Long/Short Equity strategy is popular with hedge funds,
many of which employ a market-neutral strategy, in which dollar amounts of both long and short positions areequal.
Managed Futures
Managed futures strategies seek directional market trends, relying on quantitative signals to identify when different asset classes are poised to rise or fall. The
strategies use futures contracts to take long positions when signals indicate an asset class will rise, and short positions when signals indicate the asset class will
fall. A managed futures strategy can take advantage of directional trends in nearly any asset type, inclusive of fixed income, currency, equity and commodities
markets. The strategy’s ability to track different assets and take advantage of both rising and falling markets has led to a substantially different return profile from
most other asset classes. That uniqueness has its benefits.
Different managed futures strategies have different aims. Some trend following strategies seek to exploit longer-term market trends. Other strategies, such as
counter-trend strategies, seek short-term trends to capitalize on volatile markets with a lot of back-and-forth pricemovements.
Market Neutral
A Market-Neutral strategy is a type of investment strategy undertaken by an investor, or an investment manager, that seeks to profit from both increasing and
decreasing prices in one or more markets, while attempting to completely avoid some specific form of market risk. Market-neutral strategies are often attained by
taking matching long and short positions in different stocks to increase the return from making good stock selections and decreasing the return from broad market
movements.
Options
Options may be combined in a myriad of ways to produce risk/return profiles to hedge or speculate according to the investor's needs and circumstances within the
context of the current market environment.
Bear
A bear spread is an option strategy seeking maximum profit when the price of the underlying security declines. The strategy involves the simultaneous purchase and
sale of options; puts or calls can be used. A higher strike price is purchased and a lower strike price is sold. The options should have the same expiration date.
Multialternative
A Multialternative strategy offers investors exposure to several different alternative investment tactics. Funds in this category have a majority of their assets
exposed to alternative strategies. An investor's exposure to different tactics may change slightly over time in response to market movements.
29
Alternative Investments
Real Estate
Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit; it’s a tangible and immovable asset. Each real
estate asset is a unique investment because of the property and buildings that can be built onit.
Real estate is an asset form with limited liquidity relative to other investments if bought outright, it is also capital intensive (although capital may be gained through
mortgage leverage) and is highly cash flowdependent.
Real Estate can be divided among a pool of investors, and can be categorized by the way the property is used by the owners or tenants. Can be owned in various
forms such as public, private or financed through equity of debt.
Commodities
Tradable commodities consist of basic goods used in commerce that are often interchangeable with other goods of the same type. These tradable commodities
are usually evaluated by economists as inputs in the production of other goods orservices.
Tradable commodities are usually categorized into four basic groups: energy, metals, livestock and agriculture. Among economists, there is little differentiation
between a tradable commodity coming from one producer and the same commodity from anothersource.
Trading of commodities is usually executed through future contracts on exchanges that standardize the quantity and minimum quality of the products traded. The
future element of trading commodities can add risk to the transaction, since factors that cannot be controlled (such as weather) may affect the production of the
commodity. For this reason, experts recommend allocating no more than 10% of a portfolio to tradablecommodities.
Infrastructure
Infrastructure is the basic physical systems of a business or a nation—transportation, communication, sewage, water and electric systems. These systems tend to
be high-cost investments; however, they are vital to a country's economic development and prosperity. Projects related to infrastructure improvements may be
funded publicly, privately or through public-privatepartnerships.
30
Definitions
Alpha measures the difference between a fund’s actual and expected returns, based on beta, and is generally used as a measure of a manager’s added value
over a passive strategy.
Beta measures a fund’s sensitivity to market movements. The beta of a market is 1.00 by definition.
Correlation is a statistical measure of how two securities perform relative to each other.
Drawdown is the peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage
between the peak and the trough.
The Environmental, Social And Governance (ESG) Criteria is a set of standards for a company’s operations that socially conscious investors use to screen
investments. Environmental criteria looks at how a company performs as a steward of the natural environment. Social criteria examines how a company
manages relationships with its employees, suppliers, customers and the communities where it operates. Governance deals with acompany’s leadership,
executive pay, audits and internal controls, and shareholder rights.
Mean Reversion is the theory suggesting that prices and returns eventually move back toward the mean or average. This mean or average can be the
historical average of the price or return.
Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings.
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability
by revealing how much profit a company generates with the money shareholders have invested.
Sharpe Ratio is a ratio developed to measure risk-adjusted performance.
Standard Deviation is a statistical measurement of performance fluctuations. Generally, the higher the standard deviation, the greater the expected volatility of
returns.
31
Index Definitions
It is not possible to invest directly in an index.
Barclays Aggregate Bond Index is a broad bond index covering most U.S. traded bonds and some foreign bonds traded in the U.S.
Barclays BTOP50 Index seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The largest investable
trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50.
Barclays Global Aggregate Index which is a flagship measure of global investment grade debt from twenty-four local currency markets.
Barclays US Corporate High Yield Index which measures the USD-denominated, high yield, fixed-rate corporate bond market.
CBOE S&P 500 BuyWrite BXM Index is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index.
CBOE S&P 500 PutWrite Index is a benchmark index designed to sell a sequence of one-month, at-the-money, S&P 500 Index puts and invest cash at one- and three-month Treasury
Bill rates.
Credit Suisse Convertible Arbitrage Index seeks to replicate the return of the overall hedge fund industry, as represented by the Credit Suisse Hedge Fund Index.
Credit Suisse ED Risk Arbitrage Index is a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of risk arbitrage funds.
Credit Suisse Equity Market Neutral Index is a subset of the Credit Suisse AllHedge Index that measures the aggregate performance of equity market neutral funds.
Credit Suisse Global Macro Index is a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of global macro funds.
Credit Suisse Hedge Fund Index is an asset-weighted hedge fund index and includes only funds, as opposed to separate accounts.
Credit Suisse Long/Short Equity Hedge Fund Index is a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of dedicated short bias funds.
Credit Suisse Managed Futures Index is a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of managed futures funds.
Credit Suisse Multi-Strategy Index is a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of multi-strategy funds.
Dow Jones Commodity Index is a broad measure of the commodity futures market that emphasizes diversification and liquidity through a simple, straightforward, equal-weighted
approach.
Eurekahedge is an independent data provider and alternative research firm that specializes in hedge fund databases covering North America, Europe, Asia and Latin America. It is a
subsidiary of Mizuho Bank.
Eurekahedge Arbitrage Hedge Fund Index (Bloomberg Ticker - EHFI285) is an equally weighted index of 83 constituent funds. The index is designed to provide a broad measure of
the performance of underlying hedge fund managers who invest with an arbitrage strategy.
Eurekahedge CTA/Managed Futures Hedge Fund Index (Bloomberg Ticker - EHFI286) is an equally weighted index of 364 constituent funds. The index is designed to provide a
broad measure of the performance of underlying hedge fund managers who invest with a CTA/managed futures strategy.
Eurekahedge Fixed Income Hedge Fund Index (Bloomberg Ticker - EHFI289) is an equally weighted index of 320 constituent funds. The index is designed to provide a broad
measure of the performance of underlying hedge fund managers who invest with a fixed income strategy.
Eurekahedge Long Short Equities Hedge Fund Index (Bloomberg Ticker - EHFI252) is an equally weighted index of 944 constituent funds. The index is designed to provide a broad
measure of the performance of underlying hedge fund managers.
32
Index Definitions
It is not possible to invest directly in an index.
Eurekahedge Macro Hedge Fund Index (Bloomberg Ticker - EHFI253) is an equally weighted index of 188 constituent funds. The index is designed to provide a broad measure of the
performance of underlying hedge fund managers who invest with a macro strategy.
Eurekahedge Equity Market Neutral Hedge Fund Index (Bloomberg Ticker - EHFI751) is an equally weighted index of 58 constituent funds. The index is designed to provide a broad
measure of the performance of underlying hedge fund managers who invest with an equity market neutral strategy.
Eurekahedge Multi-Strategy Hedge Fund Index (Bloomberg Ticker - EHFI254) is an equally weighted index of 254 constituent funds. The index is designed to provide a broad
measure of the performance of underlying hedge fund managers who invest with a multi-strategy strategy.
FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index include all tax-qualified REITs with
more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.
FTSE 3 Month T-Bill Index measures monthly return equivalents of yield averages that are not marked to market. The Three-Month Treasury Bill Indexes consist of the last three
three-month Treasury bill issues.
HFRI Equity Hedge Index is a global, equal-weighted index of the largest hedge funds that report to the HFR Database which are open to new investments and offer quarterly liquidity
or better.
HRFI Equity Market Neutral Index is defined as Equity Market Neutral Strategies that typically maintain characteristic net equity market exposure no greater than 10% long or short.
MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The index includes
reinvestments of dividends, net of foreign withholding taxes.
Morningstar Long/Short Equity Category is defined as long-short portfolios that hold sizable stakes in both long and short positions in equities and related derivatives. At least 75%
of the assets are in equity securities or derivatives.
Morningstar Managed Futures Category is defined as funds that primarily trade liquid global futures, options, swaps, and foreign exchange contracts, both listed and over-the-
counter. More than 60% of the fund’s exposure is invested through derivative securities. These funds obtain exposure primarily through derivatives; the holdings are largely cash
instruments.
Morningstar MSCI Long/Short Credit Index seeks to take exposure to credit-sensitive securities, long and/or short, based upon credit analysis of issuers and securities, and credit
market views.
Morningstar Multialternative Category is defined as funds that will use a combination of alternative strategies such as taking long and short positions in equity and debt, trading
futures, or using convertible arbitrage, among others.
S&P 500 Index is a commonly recognized, market capitalization weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
VIX is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied
volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk,
often referred to as the “investor fear gauge.”
33
To learn more, or to speak with an investment specialist,
please contact 361 Capital at:
866-361-1720
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You should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. For a
prospectus, or summary prospectus that contains this and other information about the Funds, call 1-888-736-1227 or visit
our website at www.361capital.com. Please read the prospectus or summary prospectus carefully before investing.
Investing involves risk including the possible loss of principal. There are no guarantees that any strategy will be successful or result
in a favorable outcome.
The 361 Funds are distributed by IMST Distributors, LLC.
February 2020
361 Capital | 4600 South Syracuse Street, Suite 500, Denver, CO 80237 | 866.361.1720 | 361capital.com