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Commentary Alternative Strategies Fund Fourth Quarter 2020 Commentary

The PartnerSelect Alternative Strategies Fund (Institutional Share Class), gained 5.84% in the fourth quarter of 2020. During the same period, the Morningstar Multialternative category was up 4.80%, and 3-month LIBOR returned 0.06%. For the full year of 2020, the fund is up 6.30% while the category is up 1.15% and 3-month LIBOR is up 0.67%.

Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the funds may be lower or higher than the performance quoted. To obtain standardized performance of the funds, and performance as of the most recently completed calendar month, please visit www.partnerselectfunds.com.

Quarterly Review

The Alternative Strategies Fund returned 5.84% during the quarter, finishing with a nice 6.30% gain for the full year. The fourth quarter saw four of five managers produce positive returns, generally led by managers with the highest beta to economic recovery/normalization. As such, FPA led the way with a 17.03% return; this was somewhat of an appropriate bookend to the year after having suffered the largest drawdown in the first quarter. Even after the strong gains (resulting in a respectable 8.35% return for the year), their portfolio remains attractively valued with a mixture of still-cheap, somewhat cyclical businesses, reasonably valued high-quality, high-growth compounders, and a handful of idiosyncratic special situations. Loomis Sayles was the second-best performer in the fourth quarter as corporate credit gains continued, also finishing as the second-best performer for the year, with a return of 13.35%. This resulted from the portfolio managers aggressively adding credit exposure following the market dislocation in March. While their portfolio has significantly less net exposure to high-yield than it did at its peak, it still sports a higher yield than the high-yield market overall with significantly less interest rate risk than the investment-grade bond market, an attractive combination in our view.

Water Island was also a strong performer in the fourth quarter, gaining 6.45%, and was the best performer in the fund for the full year, returning 14.11% while maintaining a low beta and moderate correlation to the overall equity market. They were able to achieve this by entering the year conservatively, shifting more capital to their highest-conviction deals following the extreme liquidation-driven spread widening in the merger space, and selectively participating in other higher-beta event-driven situations (e.g., SPACs) as merger spreads normalized.

DoubleLine produced a more modest 3.00% gain in the fourth quarter and a small positive return (up 1.14%) for the full year, while DCI took a slight loss (down 0.67%) in the fourth quarter and generated a small positive return (up 1.00%) for the year, after having held up the best during the stomach-churning chaos of March. As we have discussed previously, DoubleLine has the most exposure of any of our managers to structured credit that is not a direct beneficiary of Fed/Treasury support programs, so the trajectory of their performance recovery has been closer to the Nike “swoosh” than the sharp V-shaped bounce that the corporate bond markets enjoyed. As such, we believe there is still considerable value to be realized in their portfolio, with a healthy yield supporting it.

While much of the fund benefited from the improving sentiment surrounding positive pandemic-related developments, DCI did not, as the fourth quarter beta rally produced stronger gains in their lower-quality short positions than in their long positions, similar to the period immediately following the crisis. Overall, a more “normal” (i.e., not driven by pure fear nor greed) environment with reasonable volatility should be a good environment for the strategy. Since we think about the fund as a whole, we are willing to live with periods where one manager slightly underperforms while the rest of the portfolio produces significant gains since our aim is to have internal diversification across strategies.

We are gratified to report the positive performance to fellow shareholders, particularly after the challenging start to the year. Looking back, while it is never pleasant to go through a drawdown, we are pleased overall with the way our sub-advisors managed through a truly historic market crisis and emerged sure-footed on the other side, able to seize the opportunities presented. To us, it reinforces the importance of partnering with skilled and experienced managers with good judgment and feel for markets. Had we known the magnitude of what would unfold beforehand, we obviously would have been positioned even more defensively, but we think the fund’s performance for the year speaks well to its ability to successfully navigate a variety of market environments, good and bad. Thank you for your continued confidence in the fund. We wish everyone a healthy, happy, and prosperous new year.

PartnerSelect Alternative Strategies Fund Risk/Return Statistics 12/31/20 MASFX Bloomberg
Barclays
Agg Bond
Morningstar
Multi-Alternatives Category
HFRX Global Hedge Fund Russell 1000
Annualized Return4.923.441.832.3416.44
Total Cumulative Return55.9836.6718.2523.84308.83
Annualized Std. Deviation4.712.954.484.3513.82
Sharpe Ratio (Annualized)0.900.950.280.401.18
Beta (to Russell 1000)0.290.000.300.271.00
Correlation of MASFX to…1.00-0.070.830.680.80
Worst Drawdown-13.00-5.39-13.49-10.83-32.47
Worst 12-Month Return-5.36-2.47-6.65-8.19-8.03
% Positive 12-Month Periods85.44%80.58%70.87%69.90%94.17%
Upside Capture (vs. Russell 1000)29.218.8122.5322.78100.00
Downside Capture (vs. Russell 1000)27.12-9.1337.9034.05100.00
Since inception (9/30/11).
Worst Drawdown based on weekly returns
Past performance is no guarantee of future results

Performance of Managers

For the quarter, four of five sub-advisors produced positive returns. FPA’s Contrarian Opportunity strategy was up 17.03%, the Loomis Sayles Absolute Return strategy gained 7.33%, Water Island’s Arbitrage and Event-Driven strategy was up 6.45%, DoubleLine’s Opportunistic Income strategy gained 3.00%, whilethe Blackstone Credit (DCI) Long-Short Credit strategy fell by 0.67%. (All returns are net of the management fee charged to the fund.)

Key Performance Drivers and Positioning by Strategy

Blackstone Credit (DCI)

The DCI Long-Short Credit strategy declined 0.7% (net) in the fourth quarter, taking a step back in its recovery trajectory and leaving returns at 1.0% for the year. The credit default swap (CDS) sleeve was the detractor for the quarter, while the bond sleeve made small gains. Security selection was challenging in the fourth quarter as a ferocious rally in beaten-up credits on the back of the positive COVID-19 vaccine news drove credit spreads narrower, in particular for the low end of the quality spectrum, and stoked a rotation into economic-recovery trades in transports, energy, travel, and leisure credits. The portfolio was underweight to some of these distressed names and sectors, so the short side of the portfolio delivered losses during the quarter. Net beta effects were a positive contributor, as rates were a small positive and credit hedges performed in line. 

Risk assets ended the quarter up notably on the positive vaccine news and the market’s read of the U.S. election. Energy and small caps led the way as oil gained 21% and the Russell 2000 Index jumped 31%. Treasury yields climbed 20 basis points (bps) out the curve as inflation expectations began to heat up at the end of the year. For the quarter, the High Yield Index (HUC0) was up about 6.5% as credit spreads in high-yield narrowed by about 150 bps. Low-rated and distressed led the way, with bounce-back gains in airlines, oil-patch, hotels, and leisure standing out. Other measures of credit market health were also strongly positive. Trading and bid-ask spreads are back to normal, issuance was at record levels on the low yields, investor flows were constructive, and market sentiment was ebullient. Risk measures all eased, though default probabilities remain modestly elevated and disperse. Bankruptcies, which have been running hot, eased into year-end.

Security-selection alpha in the portfolio was negative during the quarter, led by losses in the CDS book. Short positions in retail (Nordstrom and Kohl’s), industrials, and financials were the largest detractors. Long positions in steel (U.S. Steel and ArcelorMittal), energy, autos, and mining led the way. In bonds, the longs also had trouble keeping up with the shorts (i.e., the CDX index). Gains in technology names and consumer names (including some hotels and travel) continued to boost the portfolio, but were offset by underweights in large energy, leasing, and telecom index names.  

The bond portfolio continues to be overweight to technology and consumer names, particularly in Internet and entertainment. The portfolio is long small energy players and is underweight to the large names. The CDS portfolio is still long steel and mining but has moved to be closer to neutral within almost all sectors, notably energy and telecoms. There are overweights in housing and auto amongst consumer names, and insurance among financials.

By design the portfolio construction is always focused on asset selection—favoring firms with lower default risk (as measured by DCI’s proprietary default probability model) and improving fundamentals—and is constructed neutral to credit beta. While market dislocations from the spring have largely normalized, credit differentiation has recently taken a back seat to the large beta and recovery-rotation trades. Hence, DCI still sees elevated opportunity for credit differentiation in 2021 as underlying corporate fundamentals come back into focus. This should be a positive factor for the strategy going forward.

DoubleLine

For the quarter, the Opportunistic Income portfolio’s 3.0% gain outperformed the Bloomberg Barclays US Aggregate Bond Index return of 0.7%. The outperformance was primarily driven by asset allocation as the quarter was generally defined by rallying risk asset prices, and the portfolio maintained significantly more credit exposure than the benchmark.

Every sector in the portfolio generated positive total returns during the quarter, but the largest contributors to performance were collateralized loan obligations (CLOs), commercial mortgage-backed securities (CMBS), and emerging-market (EM) corporate bonds. These three sectors were directly impacted by the initial COVID-19 selloff in March and news of an effective vaccine in November caused a significant rally in prices for these assets. Bank loans and asset-backed securities (ABS) also had strong performance over the quarter as the capital markets remained favorable for bank loan issuers and credit trends for many ABS sectors were satisfactory. Non-agency residential mortgage-backed securities (RMBS) also contributed to performance, but the significant rally during the summer months meant it had relatively less room to run in the most recent quarter.

The smallest contributor to performance was agency MBS. Government-backed assets naturally took a back seat during the quarter as market focus shifted firmly toward credit risk products. On a year-to-date basis, however, the relatively small allocation to agency MBS was a top performer within the portfolio. The duration ended the quarter at 1.6 years and the yield to maturity was 5.6%. 

FPA

The FPA Contrarian Opportunity strategy’s performance accelerated in the fourth quarter (up 17.0%), as positive news regarding the development of COVID-19 vaccines fueled gains in most risk assets, while many beaten-down value names in financials and industrials benefited disproportionately. The top contributors for the quarter were AIG, Alphabet, Baidu, Jefferies, and Howmet Aerospace (formerly Arconic). The largest detractors were the long Porsche/short auto makers basket (due in large part to Tesla being part of the short basket), a broad market hedge, and Alibaba Group Holding, which was impacted by negative sentiment following founder Jack Ma’s public criticism of the Chinese government’s regulatory approach and the subsequent cancellation of the planned IPO of Alibaba’s payment/technology affiliate Ant Group. FPA used the opportunity to add significantly to the Alibaba position, feeling that the long-term outlook for the company remains strong.

New positions during the quarter included FirstEnergy, International Flavors & Fragrances, Open Text, SS&C Technologies, and Unilever. As a result of the ongoing restructuring from the McDermott International bankruptcy agreement, some of the previously held McDermott International debt was restructured into new debt and common stock for McDermott International and debt for Lealand Finance. The portfolio managers trimmed Bank of America and CIT Group on significant share price gains. They also exited Jardine Strategic Holdings and a long-held (essentially since the fund’s inception) position in Microsoft that has been an extraordinary long-term performer for the portfolio. The Hall of Fame Village term loan was also paid off.

Gross long exposure to equities is 78% and net exposure is approximately 76%. The largest sector concentration is in communication services, with financials and information technology following. These three sectors comprise more than half of the equity portfolio. Gross long credit exposure is 4.5% and net exposure is approximately 4% of assets. While FPA increased the portfolio’s credit exposure near the end of the first quarter of 2020 given the substantial increase in yields and spreads, they no longer find credit attractive, but will be alert for idiosyncratic opportunities in the high-yield bond market. However, the portfolio managers are finding extremely attractive risk-adjusted situations in private credit, with the ability to generate higher yields than public markets with significantly better terms and downside protection. Although this will never be a large part of the portfolio, it represents one of the best areas to deploy capital currently. Cash is approximately 19.5%.

Loomis Sayles

The Absolute Return strategy posted another strong quarter to finish the year, gaining 7.3%. High-yield corporate bonds performed well during the quarter as spreads meaningfully tightened. The sector benefited over the period from supportive monetary policy, as well as optimism over vaccine effectiveness and potential additional fiscal stimulus. Within the portfolio, consumer and communications issues contributed most to performance. Investment-grade (IG) corporate bonds also contributed to performance, as spreads in IG tightened as well and the sector continued to perform well. Fundamentals improved since the end of the third quarter, and favorable vaccine developments and the continued demand for yield supported credit assets. Financial, consumer cyclical, and capital goods names were the largest contributors to the portfolio’s performance.  

The portfolio’s allocation to equities performed well due to many of the same macro factors creating a supportive environment for other risk assets. Energy, capital goods, and communications names in particular bolstered performance. Exposure to bank loans marginally detracted during the fourth quarter. Supportive central bank policies have created a challenging environment with reference rates low. Within the portfolio, energy names primarily weighed on the allocation to bank loans.

The portfolio’s calculated duration is about 3.6, with a yield to worst of 4.4%.

Water Island

The Water Island Arbitrage and Event-Driven portfolio generated a net return of approximately 6.5% in the fourth quarter. Both strategy sleeves contributed to returns: +3.1% from merger arbitrage and +3.8% (both gross) from special situations.

The top contributor in the portfolio for the fourth quarter was the position in the acquisition of Taubman Centers Inc. by Simon Property Group Inc. Water Island has discussed the Taubman/Simon deal at length in prior quarters, as this was a transaction Simon attempted to abandon after the companies—both mall REITs—saw their businesses deteriorate amidst the pandemic. The investment team’s assessment of the strength of the merger agreement helped them maintain conviction in the deal, which was rewarded when the companies ultimately saw fit to resolve their differences. On the eve of the trial, the companies reached an agreement to both settle their pending litigation and revise the deal price lower, rather than continue to pursue costly litigation. The deal closed successfully shortly before year-end. Other top contributors included positions in the SPAC acquisitions of Romeo Power, a manufacturer of battery packs for electric vehicle makers, and of Danimer Scientific, a leading designer and manufacturer of biodegradable plastics. Each of these SPACs launched in the third quarter timeframe and successfully brought public their targets in December, leading to gains for the fund.

The top detractor for the fourth quarter was a position in the $35 billion acquisition of semiconductor manufacturer Xilinx by Advanced Micro Devices. This deal, announced in October, experienced spread volatility during the quarter on fears that sour U.S.-China relations could impact its ability to receive required regulatory approvals in China. Water Island still believes the deal is on track and the team is maintaining the exposure. Other top detractors included a special-situations position in BorgWarner, which was held following the completion of its acquisition of Delphi Technologies in the belief that it could realize synergies and re-rate higher, and a position in the $21 billion acquisition of Slack Technologies by Salesforce.com. While Water Island still believes BorgWarner will eventually unlock value from its Delphi acquisition, the portfolio managers opted to redeploy capital to more attractive near-term catalysts, expecting the story to take some time to unfold. The Slack/Salesforce transaction has experienced spread volatility based on fears the new Democratic administration could crack down on consolidation amongst large tech companies. Water Island is holding the position as they still believe this transaction has a high likelihood of reaching a successful conclusion.

Reflecting on the year that was 2020, we can’t help but say “good riddance” to a period characterized by a once-in-a-century pandemic and the most contentious election in recent US history. We are grateful to be progressing toward what will hopefully be an era of greater certainty – certainty around the prospects for economic recovery, certainty around COVID-19 treatment and prevention, and certainty around the political landscape in Washington. At the same time, 2020 was an interesting year for our investment strategy – one of the most prolific and productive periods for event-driven opportunities in the past decade.

Our defensive posture at the start of the year proved fortuitous. The portfolio withstood much of the dramatic forced and panicked selling across event-driven opportunities that we witnessed in the midst of the Q1 turmoil, placing us in a position to capitalize on opportunistic entry points and the eventual recovery. As we have written in prior commentaries, similar periods of severe market stress have often been followed by an initial slowdown in corporate activity, after which M&A tends to resume quickly. Companies in a position of strength seek to make opportunistic acquisitions, while companies in a position of weakness are forced to consolidate to survive.

Indeed, while Q2 saw corporate activity plummet, during Q3 markets rallied on the backs of Federal Reserve support, green shoots for the economy, and reopenings across the country – and the period set a Q3 record for the level of announced M&A valued over $5 billion. The surge in dealmaking continued through Q4. M&A activity in the final months of the year was broad-based, with announcements across all regions and all sectors. The source of the acquisitions has ranged from strategic buyers spurred by the economic recovery, to private equity buyers eager to take advantage of low borrowing costs. In 2020, private equity deals reached their highest level since 2007 – and PE firms still have massive amounts of dry powder ready for willing sellers. SPACs, which take companies public through an acquisition, are also driving consolidation activity. A SPAC typically has two years to complete a merger before it must return capital to its investors. As of December 2020, of the more than 270 SPACs that have launched since Q3 2018, more than 240 were introduced in 2020, and 78 have either completed or announced a merger while 193 of them – with more than $63 billion in capital to put to work – are still actively seeking a merger target. We have also seen low oil and gas prices drive an increase in mergers where better capitalized companies are acquiring smaller companies with good acreage and strategic overlap.

Looking forward, we believe the robust rebound in corporate activity will continue throughout 2021. There is still pent-up demand for M&A that has yet to be satisfied coming out of the 2020 lull. As the distribution of COVID-19 vaccines becomes more widespread, we expect to see continued economic recovery and increasing confidence on the part of corporate boards and management, lending further support for dealmaking. The election of Joe Biden to the presidency should create a much more predictable framework to foster M&A activity, and the slim majority Democrats will have in the Senate makes aggressive policy changes less likely. The change in control of the White House and the Senate could create a regulatory environment less conducive to large scale consolidation in the health care, technology, and telecom sectors, yet at the same time we believe it could be more favorable for activity in industries tangential to infrastructure spending and ESG themes, such as clean energy and electric vehicles. With SPACs having emerged as a valid alternative to IPOs for companies seeking to go public, we believe the future will bring further launches and announcements of successful deals from sponsors.

The months ahead appear auspicious for our event-driven strategy. While continued fiscal stimulus should help bolster broader markets, it could also spur an inflationary environment during a time when interest rates are near all-time lows. With a broad array of event-driven opportunities in front of us, we are excited and optimistic about meeting our goal of generating attractive, non-correlated returns in the months ahead.

Strategy Allocations

The fund’s capital is allocated according to its strategic target allocations: 25% to DoubleLine, 19% each to DCI, Loomis Sayles, and Water Island, and 18% to FPA. We use the fund’s daily cash flows to bring the manager allocations toward their targets when differences in shorter-term relative performance cause divergences.

Sub-Advisor Portfolio Composition as of December 31, 2020

Blackstone Credit (DCI) Long-Short Credit Strategy

Bond Portfolio Top 5 Sector Long Exposures as of 12/31/20
High Tech14.3%
Consumer Discretionary14.2%
Energy11.9%
Consumer Non-Discretionary7.9%
Materials6.2%

CDS Portfolio Statistics:

CDS Portfolio Statistics: LongShort
Number of Issuers8777
Average Credit Duration (yrs.)4.84.8
Spread111 bps115 bps

DoubleLine Opportunistic Income Strategy

Sector Exposures as of 12/31/20
Cash4.5%
Agency Inverse Floaters1.5%
Agency Inverse Interest-Only9.5%
Agency CMO0.7%
Agency PO3.1%
Collateralized Loan Obligations8.1%
Commercial MBS11.8%
ABS5.8%
Bank Loan5.3%
Emerging Markets5.6%
Non-Agency Residential MBS41.5%
Other2.5%
Total100.0%

FPA Contrarian Opportunity Strategy

Asset Class Exposures as of 12/31/20
U.S. Stocks48.5%
Foreign Stocks29.8%
Bonds and Loans3.9%
Limited Partnerships1.0%
Short Sales-2.6%
Cash19.5%
Total100.0%

Loomis Sayles Absolute Return Fixed-Income Strategy

Long Total Short Total Net Exposure
High-Yield Corporate 41.2%-2.3%38.9%
Securitized29.1%-0.4%28.7%
Investment-Grade Corp.18.7%0.0%18.7%
Dividend Equity9.0%-0.4%8.6%
Emerging Market6.1%-2.0%4.1%
Convertibles5.5%0.0%5.5%
Bank Loans0.5%-0.2%0.3%
Global Credit0.4%-0.4%0.1%
Global Rates0.2%0.0%0.2%
Subtotal110.7%-5.6%105.1%
Cash & Equivalents8.7%0.0%8.7%

Water Island Arbitrage and Event-Driven Strategy

Sub-Strategy Exposures

Long Short Net
Merger Arbitrage – Equity76.1%-26.4%49.7%
Merger Arbitrage – Credit3.2%-0.2%3.0%
Total Merger-Related79.3%-26.6%52.7%
Special Situations – Equity11.7%-1.0%10.7%
Special Situations – Credit3.9%0.0%3.9%
Total Special-Situations15.6%-1.0%14.7%
Total94.9%-27.5%67.4%

Related

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DISCLOSURE

The fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The statutory and summary prospectus contains this and other important information about the investment company, and it may be obtained by calling 1-800-960-0188. Read it carefully before investing.

Although the managers actively manage risk to reduce portfolio volatility, there is no guarantee that the fund will always maintain its targeted risk level, especially over shorter time periods and loss of principal is possible. The performance goals are not guaranteed, are subject to change, and should not be considered a predictor of investment return. All investments involve the risk of loss and no measure of performance is guaranteed. The fund aims to deliver its return over a full market cycle, which is likely to include periods of both up and down markets.

Though not an international fund, the fund may invest in foreign securities. Investing in foreign securities exposes investors to economic, political and market risks, and fluctuations in foreign currencies. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in mortgage-backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. The fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Multi-investment management styles may lead to higher transaction expenses compared to single investment management styles. Outcomes depend on the skill of the sub-advisors and advisor and the allocation of assets amongst them. Investing in derivatives could lose more than the amount invested. The fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a proposed reorganization in which the fund invests is renegotiated or terminated.

Diversification does not assure a profit nor protect against loss in a declining market.

Leverage may cause the effect of an increase or decrease in the value of the portfolio securities to be magnified and the fund to be more volatile than if leverage was not used.

Alpha is an annualized return measure of how much better or worse a fund’s performance is relative to an index of funds in the same category, after allowing for differences in risk.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Correlation is a statistical measure of how two securities move in relation to each other.

Credit Default Swap (CDS) A credit default swap (CDS) is a financial derivative or contract that allows an investor to “swap” or offset their credit risk with that of another investor. For example, if a lender is worried that a borrower is going to default on a loan, the lender could use a CDS to offset or swap that risk

Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration.

A basis point is a value equaling one on-hundredth of a percent (1/100 of 1%).

Collateralized Loan Obligation (CLO) is a security backed by a pool of debt, often low-rated corporate loans. Collateralized loan obligations (CLOs) are similar to collateralized mortgage obligations, except for the different type of underlying loan.

Market capitalization (or market cap) is the total value of the issued shares of a publicly traded company; it is equal to the share price times the number of shares outstanding.

Mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages Mortgage Real Estate Investment Trusts mREITs deal in investment and ownership of property mortgages; they loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities.

Standard deviation is a statistical measure of the historical volatility of a mutual fund or portfolio, usually computed using 36 monthly returns.

Sharpe ratio is the measure of a fund’s return relative to its risk. The Sharpe ratio uses standard deviation to measure a fund’s risk-adjusted returns. The higher a fund’s Sharpe ratio, the better a fund’s returns have been relative to the risk it has taken on. Because it uses standard deviation, the Sharpe ratio can be used to compare risk-adjusted returns across all fund categories.

A short sale is the sale of an asset or stock the seller does not own.  It is generally a transaction in which an investor sells borrowed securities in anticipation of a price decline; the seller is then required to return an equal number of shares at some point in the future. Contrastingly, a seller owns the security or stock in a long position.

Upside/downside capture is a statistical measure that shows whether a given fund has outperformed–gained more or lost less than–a broad market benchmark during periods of market strength and weakness, and if so, by how much. The BofA High-Yield Cash Pay Index The index is an unmanaged index used as a general measure of market performance consisting of fixed-rate, coupon-bearing bonds with an outstanding par which is greater than or equal to $50 million, a maturity range greater than or equal to one year and must be less than BBB/Baa3 rated but not in default.

The BofA High-Yield Constrained Index  is a market value-weighted index of all domestic and yankee high-yield bonds, including deferred interest bonds and payment-in-kind securities.

The Bloomberg Barclays Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. The index includes US Treasury Securities (non TIPS), Government agency bonds, Mortgage backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S.

CDX Indexes track North American and emerging market credit derivative indexes.

LIBOR stands for London Interbank Offered Rate. It’s an index that is used to set the cost of various variable-rate loans.

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies; including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage.

The VIX Index is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market’s expectation of stock market volatility over the next 30 day period.

Each Morningstar Category Average represents a universe of Funds with similar investment objectives. As of March 31, 2020, the Morningstar Multialternative Category average expenses were 2.01% gross and 1.59% net.

You cannot invest directly in an index.

Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security.

As of September 30, 2020, the PartnerSelect Alternative Strategies Fund’s top 10 holdings were:

LOGMEIN INC 1.50%
XILINX INC 1.15%
SLACK TECHNOLOGIES INC  CL A 1.07%
PLURALSIGHT INC   A 1.04%
ALEXION PHARMACEUTICALS INC 1.04%
58.COM INC 0.98%
WILLIS TOWERS WATSON PLC 0.87%
REALPAGE INC 0.79%
GRUBHUB INC 0.73%
COMCAST CORP CLASS A 0.63%

Any tax or legal information provided is merely a summary of our understanding and interpretation of some of the current income tax regulations and it is not exhaustive. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Funds nor any of its representatives may give legal or tax advice.

Mutual fund investing involves risk. Principal loss is possible.

Litman Gregory Fund Advisors, LLC has ultimate responsibility for the performance of the PartnerSelect Funds due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement.

Effective July 31, 2020 the name of the Litman Gregory Masters Funds was changed to PartnerSelect Funds. The PartnerSelect  Funds are Distributed by ALPS Distributors, Inc.  LGM001035 exp. 4/30/2021