Equities are well-known investments that have been a core holding in investor portfolios for decades. Over the last 27 years, equities (such as U.S. stocks), have provided an average annual return of 9.5%. However, as the chart below illustrates, with this performance often comes significant volatility. This has led investors to search for new opportunities that might allow them to better limit the downside while still participating in the return potential of the upside.
January 1, 1997 to June 30, 2024
Time period 1/1/97-6/30/24. The shaded areas represent crisis periods. Long-only Equity is represented by S&P 500 Total Return Index. Past Performance is not a guarantee of future results. The referenced indices are shown for general market comparisons and are not meant to represent the Fund. One cannot invest directly in an index. Fund performance may be obtained by calling 1.855.LCFUNDS (1.855.523.8637). Source: Morningstar Direct
A long/short equity strategy takes long positions in stocks that are expected to increase in value and short positions in stocks that are expected to decrease in value. With this approach, an investor has the potential to capture much of the market upside while limiting downside loss. Since 1997, over 330 months, the S&P 500 Index was down in 115 of those months. As shown in the chart below, during those negative months for the S&P 500, a long/short equity strategy outperformed the Index by experiencing only 20% of the downside, while capturing over 42% of the upside. As a result of limiting the downside, investing in a long/short equity strategy provides the potential for reduced volatility.
| S&P 500: 207 Up Months | S&P 500: 111 Down Months | ||
|---|---|---|---|
| Long-Only Equity Average Annual Return | 3.42% | Long-Only Equity Average Annual Return | -4.02% |
| Long/Short Equity Average Annual Return | 1.45% | Long/Short Equity Average Annual Return | -0.81% |
| Capture Ratio | 42.58% | Capture Ratio | 20.19% |
The reference to indices are shown for general market comparisons and are not meant to represent any Fund. Long-Only Equity refers to S&P 500 TR Index, Long/Short Equity refers to Barclay Long/Short Equity Index. Barclay Long/Short Equity Index inception date 1/1/1997. Up Capture compares an investment’s performance against its benchmark during periods when the benchmark’s performance is positive, while Down Capture compares the investment’s performance against the benchmark during periods when the benchmark’s performance is negative. A value of greater than 100% indicates that the investment captured more return than the benchmark (this is a positive for Up Capture, however, a negative for Down Capture). Conversely, a value less than 100% means the investment captured less return than its benchmark (a positive for Down Capture, but a negative for Up Capture). Source: LoCorr Fund and Morningstar Direct.
History shows that long/short equity strategies have often outperformed the long-only S&P 500 Index in both bull markets and crisis periods. As shown below, long/short equities have historically achieved better risk-adjusted performance over market cycles than long-only strategies, with significantly lower volatility than long-only equity.
| Annualized Return | Sharpe Ratio | Beta | Standard Deviation | Max Drawdown | |
| Long/Short Equity | 8.20% | 0.90 | 0.29 | 6.70 | -14.24% |
| Long-Only Equity | 9.53% | 0.52 | 1.00 | 15.62 | -50.95% |
Past performance is not a guarantee of future results. The referenced indices are shown for general market comparisons and are not meant to represent any Fund.
Period: 1/1/97-6/30/24. Long/Short Equity refers to Barclay Long/Short Equity Index; Long-only Equity refers to S&P 500 Total Return Index. Crisis periods are defined as periods of time when the S&P 500 TR Index experienced a max drawdown of 25% or more. Source: Morningstar Direct.
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