Entries by Sydney Kaehler

Sector Focus: Convertibles

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Since the Global Financial Crisis, fixed-income investors have been fixated on the Fed Funds Rate — but this year, the market’s focus has shifted to long-term rates, and the results for traditional fixed income haven’t been pretty. The good news: short duration fixed income, including parts of the corporate credit market, is again proving to be a useful part of the solution. As Larry Holzenthaler, Senior Portfolio Manager for Fixed Income at Catalyst Funds, explains, senior corporate loans and high yield corporates have held up notably well through both the rate hikes since 2022 and the rate cuts since 2024 — and today’s high yield market is arguably higher-quality than it’s ever been.

Higher Yields: Not Necessarily Good News for Traditional Fixed Income Investors

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Since the Global Financial Crisis, fixed-income investors have been fixated on the Fed Funds Rate — but this year, the market’s focus has shifted to long-term rates, and the results for traditional fixed income haven’t been pretty. The good news: short duration fixed income, including parts of the corporate credit market, is again proving to be a useful part of the solution. As Larry Holzenthaler, Senior Portfolio Manager for Fixed Income at Catalyst Funds, explains, senior corporate loans and high yield corporates have held up notably well through both the rate hikes since 2022 and the rate cuts since 2024 — and today’s high yield market is arguably higher-quality than it’s ever been.

Defining Alternatives

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Put simply, what are alternatives? Think of traditional investments as long-only public stocks, public bonds, or cash — anything else generally falls into the alternative investment universe. As David Miller, Co-Founder and CIO of Catalyst and Rational, puts it: combining multiple uncorrelated return streams isn’t a matter of opinion, it’s math. A traditional 60/40 portfolio is only two return streams, and the math says that’s not enough.

An Introduction to Balanced Risk

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Diversification is often called the only free lunch in investing — but most portfolios still lean almost entirely on stocks and bonds. We believe that leaves an entire investment universe on the table: one with a demonstrated ability to perform independent of stocks and bonds when traditional investments struggle. This paper introduces balanced risk strategies and shows how blending in a non-correlated approach like managed futures has historically meant higher returns and shallower drawdowns, without giving up traditional market exposure.

The Math of Diversification

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Determining how much to allocate to alternatives requires more than a rule of thumb — it takes an analytical approach. A 1% allocation to a bear-market alternative may have limited impact, while a 50% allocation could dramatically reduce long-term returns. In this paper, we examine the efficient frontier, managed futures, drawdown mitigation, and the math behind combining uncorrelated assets to help you find the right balance.