In last week's Barron's there was a reference to the Catalyst Multi Strategy Fund (ACXAX) having a position in cocoa (I think it was cocoa, not crucial for this post). I've never heard of this fund company, the name was interesting enough for me to want to try to learn a little more. I really get a kick out of researching these types of products, even if I never end up using the funds, I might learn a little bit about investment process that I can use. I came up with a saying a long time ago; take little bits of process from various places to create your own process. That's usually what this sort of study is for me, and occasionally I end up incorporating a fund I find like this into client portfolios.
Generally, client portfolios are made up of individual issues and plain vanilla ETFs (by plain vanilla I mean simple equity exposure including exposure to thematic ETFs) but using slightly more complicated funds (ETFs or traditional mutual funds) for alternative strategies makes a lot of sense to me as these funds offer things I could not easily replicate directly (like managed futures or merger arbitrage and so on).
The Catalyst Fund family looks like a mix of mostly alternatives (hedge fund replicators of various sorts) and a few other closer to plain vanilla strategies (I may have that wrong I did not look at every fund they have but I am inclined to think that Small Cap Insider Buying is going to be a plain vanilla factor fund). It also looks like they partner with some other folks (hire sub-advisors maybe) on some of the funds they offer.
Looking at the fund Barron's mentioned, I used the symbol Barron's used but that is for the A-shares, the symbol for the I shares is ACXIX. Honest to God, I can't begin to understand why Barron's insists on using A-shares symbols. The fund has done ok and has a tendency to look different than the S&P 500. The fact sheet has a month by month bar chart on the fact sheet and often, not always, when the S&P 500 is down, this fund is up. If I am going to use a replicator I want it to behave differently than the S&P 500. The Morningstar page for the fund shows that it went up 1.65% in 2017. I would not expect something like this to go up with equities, again, I don't want an alternative to have equity beta.
The annual report claims it is up 4.21% annualized since its 2007 inception versus 7.04 for the S&P 500, it notes that in 2008 it was up 12.75% versus down 37% for the S&P 500. The 2008 performance to my way of thinking skews all other long term performance data, if you take the time to strip out that massive outperformance from that one year, you will likely see the fund has struggled badly for the rest of the time. That is ok though. If it repeats what it did in 2008 the next time there is a bear market then it would obviously be a very useful, bear market hold. There is of course no way to know what it can do in the next bear market.
It is a futures based strategy, it goes long and short in "stock indices, currencies, interest rates, metals, energies, livestock, soft commodities and grains." It is tough to get a handle on the holdings. As a traditional mutual fund, the holdings are not updated very often. The way the holdings are laid out on Morningstar it is tough to get a feel for what they are doing. The fact that it had a position in NZ dollars at one point a few months ago doesn't really help you understand what the fund is doing. I was unable to find any sort of blog-like content or other articles that might update fund holders on the strategy. Where it is so broad and not transparent as a function of the wrapper, it seems like a tough one to own. I view narrower strategies in a different fashion. I have a much better sense of what manage futures will do but if I am reading correctly, this is by definition broader than one strategy it is multi-strategy. Buying the fund amounts to a fairly blind bet that the managers repeat their bear market performance. The certainly could do that but there is a lot that is unknown for my tastes, at least for now.