The AlphaSimplex Managed Futures Strategy Fund (ASFYX) celebrated the tenth anniversary of its launch on July 31, 2020. That a strategy designed to provide portfolios with a source of “crisis alpha” would mark such a milestone in a pandemic year is a strange twist of fate. However, investors should note that ASFYX has delivered historically sound performance – even in years prior to “the new normal” of masks and hand sanitizer.

Versatile, Diverse, and Dynamic
ASFYX is a pure trend-following strategy that has the ability to go long or short in stocks, bonds, currencies, and commodities. It seeks to provide low long-term correlations to traditional asset classes, enhance portfolio diversification, and deliver attractive long-term returns as well as superior risk-adjusted returns during crises.

High Marks, Low Correlations
As of July 31, 2020, ASFYX is ranked 1st percentile for the previous 10-year period in the Morningstar Managed Futures Category, and is rated 5 stars by Morningstar over that same time span.* Since inception, the strategy has a correlation of 0.11 to the S&P 500®, 0.20 to the Barclays US Aggregate Bond Index, 0.72 to the Credit Suisse Managed Futures Liquid Index, and 0.89 to the SG Trend Index.

Portfolio Preparedness
Finding “crisis alpha” means finding persistent trends in markets. By analyzing market trends and maintaining low correlations across indexes, managed futures strategies like ASFYX have the potential to provide returns during prolonged crisis periods. This is evident in the chart below, which compares the SG Trend Index to the S&P 500 Total Return Index over a series of recent market crises. 

Managed Futures Performance During the 10 Worst Quarters of Equity Performance

 Period Event S&P 500 Total Return Index SG Trend Index Difference
Q4 2008
Bear Market in US Equities Led by Financials
12.7% 34.6%
Q1 2020
COVID-19 Pandemic
2.3% 21.9%
Q3 2002
WorldCom Scandal
18.0% 35.3%
Q3 2001
Terrorist Attacks on World Trade Center and Pentagon
3.9% 18.6%
Q3 2011 European Sovereign Debt Crisis -13.9% 2.4% 16.3%
Q4 2018 Equity Market Upsets and Increased Volatility -13.5% -5.1% 8.4%
Q2 2002 Continuing Aftermath of Technology Bubble Bursting -13.4% 15.8% 29.2%
Q1 2001 Bear Market in US Equities Led by Technology -11.9% 10.6% 22.5%
Q2 2010 European Sovereign Debt Crisis, "Flash Crash" -11.4% -3.1% 8.3%
Q1 2009 Credit Crisis Continues -11.0% -2.7% 8.3%
Managed futures is a risk-aware asset class that seeks to manage changing volatility environments to achieve long-term stability. Putting aside periods of acute crisis, there is evidence that managed futures can achieve a more stable risk profile over time. 

 Index Best 12-Month Return (%) Worst 12-Month Return (%) Max Drawdown Return (%)
SG Trend Index
S&P 500® TR USD

S&P 500 vs. Managed Futures Realized Volatility (250 days)
WEBART268 0920 F
Source: Bloomberg and AlphaSimplex

Don’t Forget the Good Times
Trend-following managed futures strategies can also provide returns during positive market periods, so long as trends exist. In fact, the category has historically performed well in both risk-on and risk-off environments. In 2019, the S&P 500® returned 31.49%, while the Barclays US Aggregate Bond Index returned 8.72%. ASFYX returned 8.35%, with its primary performance drivers coming from long fixed income and long equity positions.

Into the Unknown
As a result of the COVID-19 pandemic, the market environment in 2020 has been challenging – highly volatile, fear-driven, and rife with uncertainty. In a world where few investment strategies seem uniquely prepared to navigate these circumstances, a trend-following managed futures approach may be the exception. Although coronavirus treatments have improved and knowledge about preventing transmission has become widespread, the road forward remains ambiguous. Has the worst of the economic crisis passed? When will a vaccine become widely available and how might it affect the global economic recovery? While these questions remain unanswerable, managed futures strategies like ASFYX can help provide some peace of mind to investors who are interested in uncovering potential alpha opportunities while continuing to manage risk.
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*AVERAGE ANNUALIZED TOTAL RETURNS (%) AND MORNINGSTAR TOTAL RETURN PERCENTILE RANKING AND STAR RATINGS AS OF 7/31/2020: YTD: 7.69% Morningstar Category Ranking 15 out of 104; One-year 7.55%; Morningstar Category Ranking 9 out of 104; Three-Year 2.75%; Morningstar Category Ranking 27 out of 83; Star Rating: 4 stars. 5-year 0.17%; Morningstar Category Ranking 28 out of 71; Star Rating: 4 stars; 10-year 3.60%; Morningstar Category Ranking 1 out of 13; Star Rating: 4 stars. Overall rating derived from weighted average of the 3-, 5- and 10-year (if applicable) Morningstar Rating metrics; other ratings based on risk-adjusted returns.

This material is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. There can be no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. We believe the information, including that obtained from outside sources, to be correct, but we cannot guarantee its accuracy. The information is subject to change at any time without notice.

SG Trend Index is equal-weighted, reconstituted and rebalanced annually. The index calculates the net daily rate of return for a pool of Commodity Trading Advisors (CTAs) selected from the larger managers that are open to new investment. AlphaSimplex Group, LLC is part of this index.

S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

Leverage can increase market exposure and magnify investment risk. Futures and forward contracts, like other derivatives, can involve a high degree of risk and may result in unlimited losses. Because they depend on the performance of an underlying asset, they can be highly volatile and are subject to market, credit, and counterparty risks. Short exposures using derivatives may present various risks. If the value of the asset, asset class or index on which the Fund holds short investment exposure increases, the Fund will incur a loss. The potential risk of loss from a short exposure is theoretically unlimited, and there can be no assurance that securities necessary to cover a short position will be available for purchase. Equity securities are volatile and can decline significantly in response to broad market and economic conditions. Foreign and emerging market securities may be subject to greater political, economic, environmental, credit, currency and information risks. Foreign securities may be subject to higher volatility than US securities, due to varying degrees of regulation and limited liquidity. These risks are magnified in emerging markets. Commodity-related investments, including derivatives, may be affected by a number of factors including commodity prices, world events, import controls, and economic conditions and therefore may involve substantial risk of loss. Currency exchange rates between the US dollar and foreign currencies may cause the value of the Fund's investments to decline. Interest rate risk is a major risk to all bondholders. As rates rise, existing bonds that offer a lower rate of return decline in value because newly issued bonds that pay higher rates are more attractive to investors. Concentrated investments in a particular region, sector, or industry may be more vulnerable to adverse changes in that industry or the market as a whole.

Index returns are not intended to imply any future performance of any investment product. You may not invest directly in an index.

For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ used to rank the fund against other funds in the same category. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly excess performance, without any adjustments for loads (front-end, deferred, or redemption fees), placing more emphasis on downward variations and rewarding consistent performance. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star (each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages). Past performance is no guarantee of future results.

Morningstar Rating is for the Y share class only; other classes may have different performance characteristics.

Morningstar rankings for the AlphaSimplex Managed Futures Strategy Fund Class Y in the Managed Futures Category are as of 7/31/2020. The fund’s total return percentile rank for the specified time period is relative to all funds that have the same Morningstar category. The highest (or most favorable) percentile rank is 1, and the lowest (or least favorable) percentile rank is 100. Rankings are subject to change monthly. Morningstar rankings do not include the effect of sales charges.