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Equities are well-known investments that have been a core holding in individual investor portfolios for decades. Over the last 25 years, equities (such as U.S. stocks), have provided investors with an average annual return of 8.5%. However, as the chart below illustrates, with this performance 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 December 31, 2022
Source: LoCorr Fund and Morningstar Direct
Time period 1/1/97-12/31/22. Long-only Equity is represented by S&P 500 Total Return Index. The referenced indices are shown for general market comparisons and are not meant to represent the Fund. One cannot invest directly in an index. Past Performance is not a guarantee of future results. Fund performance may be obtained by calling 1.855.LCFUNDS (1.855.523.8637). The graph illustrates the growth of a hypothetical $1,000 investment in the index noted. Index performance is not illustrative of fund performance.
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, there have been five years where the S&P 500 Index produced negative returns. As shown in the chart below, during those same five years a long/short equity strategy presented a stronger return by experiencing only 20.47% of the downside. As a result of limiting the downside, investing in a long/short equity strategy provides the potential for reduced volatility.
| S&P 500: 202 Up Months | S&P 500: 110 Down Months | ||
|---|---|---|---|
| Long-Only Equity Average Annual Return | 3.37% | Long-Only Equity Average Annual Return | -4.07% |
| Long/Short Equity Average Annual Return | 1.48% | Long/Short Equity Average Annual Return | -0.83% |
| Capture Ratio | 43.81% | Capture Ratio | 20.47% |
Source: LoCorr Fund and Morningstar Direct.
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 Index, Long/Short Equity refers to Barclays Long/Short Equity Index. 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).
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 achieved better risk-adjusted performance over market cycles than long-only strategies, with significantly lower volatility than long-only equity.
Source: LoCorr Fund and Morningstar Direct
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). Period: 1/1/97-12/31/22. Long/Short Equity refers to Barclays Equity Long/Short 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 Total Return Index experienced a max drawdown of 25% or more. The graph illustrates the growth of a hypothetical $1,000 investment in the indices noted. Index performance is not illustrative of fund performance. Source: Morningstar Direct
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