361 guide to alternatives
TRANSCRIPT
Guide to AlternativesA Resource Guide for Investors
1
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
Today’s Market Environment
S&P 500 Index
10-Year US Treasury
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/94-12/31/18. 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 20 years, stock rallies have been followed by major corrections. Is your portfolio prepared?
Additionally, with near-historic lows, 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
Yie
ld
Ind
ex C
lose
Price
$2,507
Data from 12/31/52-12/31/18. 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. 3
Stocks Have Not Been A Bargain
Shiller Price-Earnings (P/E) Ratio for the S&P 500Cyclically-Adjusted P/E Ratios are 46% higher than the long-term average, suggesting that market valuations are stretched.
Price-E
arn
ings
Ratio
Shiller Price-Earnings Ratio Long-Term Average
0
5
10
15
20
25
30
35
40
45
50
1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012 2018
Current P/E Level
28.64
Long-Term Average
19.91
0%
2%
4%
6%
8%
10%
12%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
An
nu
aliz
ed
Re
turn
Standard Deviation (Volatility)
The Investing Landscape Today
4
Past performance is not indicative of future results. Source: Morningstar. Data from 07/01/02-12/31/18.
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 Market Neutral Index, Long/Short Equity by Credit Suisse Long/Short Equity Index, Managed Futures by Credit Suisse Managed Futures Index, Commodities by Dow Jones-
UBS Commodity Index. It is not possible to invest directly in an index.
Global Macro
Global Stocks
U.S. Stocks
Managed Futures
60/40 Portfolio
Long/Short Equity
Equity Market Neutral
Bonds
Multi-Strategy
Commodities
5
The Importance of Limiting Loss
The Gain Required to Recover from a LossAs losses grow, so does the return needed to recover lost assets.
-1% -5% -10%-20%
-30%-40%
-50%-60%
1% 5%11%
25%
43%
67%
100%
150%
-100%
-50%
0%
50%
100%
150%
200%
% Loss Experienced % Gain Required
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.6
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%
$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
7% Annually8 Years
11% Annually5 Years
7
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%
$300,000
$350,000
$400,000
$450,000
$500,000
$550,000
$600,000
Peak 0 1 2 3 4 5 6 7 8
Number of Years to Recover
3% Annually8 Years
7% Annually4 Years
11% Annually2.5 Years
For Investors, Sitting in Cash is Not the Answer
Source: Morningstar. Data from 12/31/87-12/31/18. Three-month T-Bill less inflation.8
The Diminishing Real Return to Cash (3-Month T-Bills less Inflation)With low yields, plus inflation, cash instruments provide a negligible return to investors. Therefore, investors sitting in cash
as a way to protect assets may be losing money over the long term.
5-Year Trailing
3-Year Trailing
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
9
Rising Rates can Erode a Portfolio’s Value
The Effect of Rising Rates on Bond Values on a Hypothetical $10,000 PortfolioA 1% rise in interest rates could significantly impact bond prices and result in years of income loss.
Hypothetical example is for illustrative purposes only.
The above chart shows the effect of rising interest rates on a hypothetical $10,000 bond (face value at maturity) and how many years it may take to make up the loss.
The example utilizes the following assumptions: Treasury with 10-year maturity with a 3% coupon rate assuming an half percent increase per year.
Alternatives are Stocks, Bonds, Commodities and Currencies Managed or Packaged DifferentlyAlternatives seek to deliver diversification benefits and offer investors a differentiated source of returns.
10
Asset Classes and Alternative Strategies
• Improves risk-adjusted returns
• Limits downside risk
• Lowers sensitivity to market and interest-rate movements
• Offers daily liquidity and transparency
Potential Benefits of Alternatives:
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 lessliquidity.
• Stocks
• Bonds
• Commodities
• Currency
• Real Estate
• Long/Short Equity
• Long/Short Credit
• Global Macro
• Market Neutral
• Managed Futures
• Options Strategies
Asset Classes Alternative Strategies
Hypothetical example is for illustrative purposes only.
11
The Potential Benefits of Staying Invested
The Effect of Letting Emotions Guide Decision MakingInvestors who stayed the course would have been better off than those who tr ied to time the market.
Past performance is not indicative of future results. Source: Morningstar. Data from 06/30/06-12/31/18. The 60/40 Portfolio is represented by 60% S&P 500 Index and 40%
Barclays Aggregate Bond Index. The Portfolio with Alternatives is represented by 37.5% S&P 500 Index, 32.5% Barclays Aggregate Bond Index, 15% Credit Suisse Long/Short Index
and 15% Credit Suisse Multi-Strategy Index. The Morningstar Moderate Portfolio includes portfolios with 50-70% equity. The investor who allowed emotions to influence decision
making moves to cash on 09/30/08 and back to 60/40 on 04/30/10 and again (to cash) on 07/31/11 and back to 60/40 on 10/31/13. It is not possible to invest directly in an index.
60/40 Portfolio
Portfolio with Alternatives
Monthly Net Flows (Morningstar Moderate Portfolio)
“I’ve missed out enough.
I need to get back in the market.”
“Looks like the market may continue
to move higher. I’m getting back in.”
“Markets just keeps going up.
I don’t want to miss out.
What could happen?”
“U.S. Debt was downgraded by
S&P? I can’t take another big loss.
I’m out.”“Are we at the bottom yet?
I’m going to cash.”
“It’s off to the races!”
-12
-8
-4
0
4
8
12
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Mo
nth
ly N
et F
low
s (
$ b
illio
ns)
Gro
wth
of $
10
,00
0
$183,852
$208,169
Seek Growth while Managing Volatility
Past performance is not indicative of future results. Source: Morningstar. Data from 07/01/02-12/31/18. 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.12
Prepare for Rising VolatilityWhen volatility is on the rise, investors may need to find more effective strategies to achieve long-term
growth while managing volatility.
5.25%
3.64%
4.75%
1.63%
4.94%
14.99%
3.40%
0.54%
Alternatives Stocks Bonds Cash
Annualized Returns Annualized Volatility
13
Consistent Returns Over Various Markets
A Smoother Path May Help Keep Investors InvestedAlternatives have historically offered more consistent returns over various market cycles.
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/94-12/31/18. Stocks are represented by the S&P 500 Index. Bonds
by the Barclays Aggregate Bond Index. Alternatives by the Credit Suisse Hedge Fund Index. It is not possible to invest directly in an index.
Stocks
Bonds
Alternatives
$877,190
$577,460
$345,834
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Portfolio Resiliency for Today’s Bouts of Volatility
Past performance is not indicative of future results. Source: Morningstar. Data from 12/31/96-12/31/18. 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.
14
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
Aligning Investor Objectives
15
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 lessliquidity.
Consider Alternatives to Traditional Markets
Past performance is not indicative of futureresults. *Investor’s core is represented by stocks and bonds. Stocks are represented by the S&P 500 Index. Bonds are
represented by the Barclays Aggregate Bond Index. Alternatives are represented by the Credit Suisse Hedge Fund Index. It is not possible to invest directly in an index. 16
Alternatives
Stocks
Bonds
1 38 23 33 29 23 12 8 10 29 11 8 16 13 5 26 15 8 16 32 14 1 12 22 0
-3 22 22 26 9 21 5 4 3 15 10 5 14 7 -19 19 11 2 8 10 6 1 3 7 -3
-4 18 4 10 0 -1 -9 -12 -22 4 4 2 4 5 -37 6 7 -3 4 -2 4 -1 1 4 -4
’94 ’95 ’96 ’97 ’98 ‘99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ‘16 ‘17 ‘18
Annual R
etu
rn(%
)
Historically, Alternatives Have Provided a Valuable Source of Additional ReturnThe table below shows annual returns for Stocks, Bonds and Cash from 1994-2018. Since 1994, alternatives have
outperformed at least one element of an investor’s core* portfolio 76% of the time.
Alternatives: Returns Over the Years
Past performance is not indicative of future results. Source: Morningstar, HFR. Data from 1/1/2004-12/31/2018. 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.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
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
3.17%
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%
PutWrite
9.48%Global Macro
9.25%Multi Strategy
14.54%Multi Strategy
10.10%Merger Arbitrage
-3.27%
MSCI World
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%
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%
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%
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
-1.05%
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%
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%
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%
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%
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%
Convertible
Arbitrage
1.98%
Convertible
Arbitrage
-2.55%
USBond
4.33%
Long/Short
Credit
3.50%
MSCI World
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%
MSCI World
Index
-8.71%
17
Long/Short Equity
Long/Short Equity
19
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.
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/94-06/30/19. Equity is represented by the S&P 500, bonds by the Bloomberg
Barclays Aggregate Bond Index, and Long/Short Equity by the Credit Suisse Long/Short Equity Index.
By allocating to Long/Short Equity, investors may benefit from improved
risk/return characteristics of the portfolio.
6.6%
6.8%
7.0%
7.2%
7.4%
7.6%
7.8%
8.0%
8.2%
8.4%
8.6%
8.8%
4.5% 5.5% 6.5% 7.5% 8.5% 9.5% 10.5%
An
nu
aliz
ed
Re
turn
Standard Deviation
40 Short
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. As shown below, 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&P
500’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.
20
33% Increase in Portfolio’s
Ending Value
$39,72160% Upside and
40% Downside
Capture of
S&P 500 Index
$29,845100% Capture
S&P 500 Index
50% Risk Reduction
(Volatility)
Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/98-12/31/18.
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
Reducing Stock Market Drawdowns
Investors may want to consider strategies that seek to minimize drawdowns in order to leave the investor in a better position 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.
21 Past performance is not indicative of future results. Source: Morningstar. Data from 01/01/98-01/01/17.
-80.0
-70.0
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
Jan
-98
Jan-9
9
Jan-0
0
Jan-0
1
Jan-0
2
Jan-0
3
Jan-0
4
Jan-0
5
Jan-0
6
Jan-0
7
Jan-0
8
Jan-0
9
Jan-1
0
Jan-1
1
Jan
-12
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Credit Suisse Long/Short Equity Index MSCI World Index
-19.64%
-13.42%-12.68%
-9.82% -9.70%
-4.37%
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
MSCI World Index Morningstar Long/Short Equity Category
Hedged Equity Seeks to Dampen Downside Risk
Past performance is not indicative of future results. Source: Morningstar. Data from 12/01/09-12/31/18. 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, 02/28/18-12/31/18 and
06/30/15-11/30/16.
Three Worst Drawdowns 2011-2018This 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.
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September 2011 December 2018 February 2016
The Risk-Return Impact of Long/Short Equity
Long/Short EquityHistorically Long/Short Equity strategies have achieved compelling returns with essentially the same risk as a
traditional 60/40 portfolio.
Past performance is not indicative of future results. Source Morningstar. Data from 01/01/94-06/30/19.
US Investment Grade Debt is represented by the Bloomberg Barclays Aggregate Bond. US High Yield Debt is represented by the Bloomberg Barclays US Corporate High Yield
Index. International Investment Grade Debt is represented by the Bloomberg Barclays Global Aggregate Index. Large Cap Equities is represented by the S&P 500 Index.
Small Cap Equities is represented by the Russell 2000 Index. International Equities is represented by the MSCI EAFE Index. Long/Short Equity is represented by the Credit
Suisse Long/Short Equity Hedge Fund Index. 60/40 Portfolio is represented by 60% S&P 500 and 40% Barclays Aggregate Bond Index. It is not possible to invest directly in an index.
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An
nu
aliz
ed
Re
turn
Standard Deviation
Large Cap Equities
Small Cap Equities
International Equities
US Investment Grade Debt
US High Yield Debt
International Investment GradeDebt
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Getting Started: Implementing Alternatives
Bonds are represented by the Bloomberg Barclays Aggregate Bond Index. Stocks are represented by the S&P 500 Index. Long/Short Equity is represented by the Credit Suisse
Long/Short Equity Hedge Fund. Alternatives are represented by the Credit Suisse Multi Strategy Hedge Fund Index. 60/40 Portfolio is represented by 60% S&P 500 and 40%
Bloomberg Barclays Aggregate Bond Index. It is not possible to invest directly in an index. 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.
Past performance is not indicative of futureresults. Source: Morningstar 04/01/94-06/30/19.
Managed Futures
Managed Futures
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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 16 years, the Managed Futures category has maintained a low correlation to most assetclasses.
Data from 07/01/01-06/30/19. 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.
Managed
Futures
Foreign
Equity
Domestic
Equity
Real
Assets
Fixed
IncomeCash
Managed
Futures1.00
Foreign Equity 0.12 1.00
Domestic Equity 0.09 0.95 1.00
Real Assets -0.01 0.53 0.44 1.00
Fixed Income 0.19 0.05 -0.01 -0.10 1.00
Cash 0.07 0.00 -0.05 0.07 0.04 1.00
Additional Strategies
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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 price movements.
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.
Alternative Investments
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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 flow dependent.
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-private partnerships.
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 a company’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.
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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 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.
Credit Suisse Long/Short Equity Hedge Fund Index which is a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of
dedicated short bias funds.
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.
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 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.”
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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.
361 Capital | 4600 South Syracuse Street, Suite 500, Denver, CO 80237 | 866.361.1720 | 361capital.com