June 5, 2020 | By: AGF

Strategy Spotlight: Why Managing the Downside is Critical.

3 min read

Not the First Bear Market, Not the Last

In March of this year the S&P 500 index dropped -33.47% from its peak in February. This represented one of the most violent selloffs in U.S. equities since the Great Depression. While stock markets have rallied since that time, they remain well below all-time highs that were established just prior to the downturn taking hold.

Bear markets of this magnitude are unnerving but are not uncommon. There have now been 12 corrections of 20% or more in the past 90 years, according to Cornerstone Research. This includes the market crash of 1929, Black Monday in the fall of 1987, and, more recently, the Tech Wreck of the early 2000s and the Great Financial Crisis in 2008-09.

In all 11 instances prior to this year, market losses from these corrections were fully recouped after an average period of 79 months or just over six and a half years. But individual recovery times were largely dependent on the magnitude and duration of the pullback, with the biggest drawdowns resulting in the longest recoveries.

Less is Often More

Reducing drawdowns can help to preserve wealth, dampen volatility and reduce the time and return needed to fully recoup losses. But attempting to time the market to achieve these goals may end up doing more harm than good.

While tactical adjustments including larger allocations to cash may help minimize losses during a correction, it is important that investors maintain a well-diversified portfolio through all phases of a full market cycle. This includes strategic weightings to stocks and bonds, as well as other non-correlated asset classes and/or long-short liquid alternative strategies that can help mitigate downside risks even further when they arise.

It can take longer than expected to earn back losses.
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Source: AGF Investments LLC. The example provided is for illustrative purposes only and not based on actual performance of any index or investment product, nor is it meant to represent the potential performance of any index or product. It assumes drawdowns of -25%, -50% and -75% to illustrate the rate of return required to recover the losses. For example, if a $10,000 investment declined by 50% it would be worth $5,000. In order to get back to the starting value of $10,000 a return of 100% would be required ($5,000 X 100% = $10,000). Similarly, a drawdown of -25% would reduce the portfolio value to $7,500 and require a rate of return of +33% to return to the starting value of $10,000 ($7,500 X 33% = $10,000).

Why AGFiQ US Market Neutral Anti-Beta Fund (BTAL)?

The strategy's market neutral structure invests long in U.S. stocks that have below-average betas and shorts U.S. stocks that have above-average betas, within sectors. While there are market circumstances under which the strategy may provide positive returns when broader equity markets are rising, it is designed specifically as a potential equity hedge for when stocks fall – as was the case recently. This makes the strategy an attractive option as a long-term strategic holding as well as short-term tactic that helps investors manage through the ebb and flow of unpredictable markets.

BTAL - AGFiQ US Market Neutral Anti-Beta Fund

Past performance is not a guarantee of future results.

Before investing you should carefully consider each Fund's investment objectives, risks, charges and expenses. This and other information is in the Fund's prospectus. Please read the prospectus carefully before you invest. Click here for prospectus.

Risks: There is no guarantee that the Funds will achieve their objective. An investment in the Funds is subject to risk including the possible loss of principal amount invested. The risks associated with each Fund are detailed in the prospectus and include, but not limited to, tracking error risk, mid-cap risk, industry concentration risk, market neutral style risk, short sale risk and specific risks related to exchange traded funds. There is a risk that during a "bull"; market, when most equity securities and long only ETFs are increasing in value, the Funds' short positions will likely cause the Fund to underperform the overall U.S. equity market and such ETFs. The Fund may not be suitable for all investors.

Shares are not individually redeemable and can be redeemed only in Creation Units. The market price of shares can be at, below or above the NAV. Brokerage commissions will reduce returns. Market Price returns are determined based on the midpoint of the bid/ask spread calculated based on a price within the range of the highest bid and lowest offer on the principal U.S. market on which the Fund's shares are traded during a regular trading session. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense subsidies and waivers in effect during certain periods shown. Absent these waivers, results would have been less favorable.

Distributor: Foreside Fund Services, LLC

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