Why Own Commodities

Commodities play a crucial role in both the global economy as well as in constructing a well-diversified portfolio. Commodity markets are generally large and liquid and have grown substantially in recent decades. Commodities play an important role as an investment by offering diversification, inflation protection, and potential growth in a portfolio.

1. Diversification

While commodity prices have fluctuated over time, they have provided strong returns historically and their performance has generally not moved in tandem with stocks and bonds. Adding investments, such as commodities, with a low correlation to other asset classes provides the potential to reduce risk and improve returns.

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). Long/Short Commodities refers to Morningstar Long/Short Commodity Index; U.S. Stocks refers to S&P 500 Total Return Index; Bonds refers to Barclays U.S. Aggregate Bond Index. Source: LoCorr Funds

2. Inflation Protection

During inflationary periods, the prices of commodities usually rise offering investors the potential for protection against inflation. As demand for goods and services increase, the price of commodities used to produce those goods and services increase as well. As the chart below illustrates, commodities provided much higher returns than stocks and bonds during the 10 highest inflationary years between 1975 to 2014.

The referenced indices are shown for general market comparisons and are not meant to represent the Fund. Stocks refer to S&P 500 Index, Bonds refer to Barclays U.S. Aggregate Bond Index, Commodities refer to S&P GSCI Commodity Index. CPI refers to Consumer Price Index. Source: arrowfunds.com Inflation Education 1/1/75-12/31/14

3. Global Growth

Global population growth has led to significant demand for commodities. When global growth accelerates so too does the production of goods, need for raw materials and worldwide demand for commodities. Acceleration in economic growth has led to an increase in commodity prices. Adding commodities to a portfolio can therefore provide the potential for enhanced returns.

Emerging Markets Have Grown Faster - Real GDP Growth Rates: June 30, 2016

Source: Global Economic Outlook 2013, January update. Developed countries include: USA, Europe, Japan, Canada, Israel, Korea, Australia, Taiwan, Hong Kong, Singapore and New Zealand. Emerging countries include: China, India, Latin America, Middle East, Africa, Russia, Central Asia and Southeast Europe.


Why Long/Short Commodities

While commodities are an important asset class in a well-diversified portfolio, historically, the majority of commodity investments have been long-only. Long-only commodity investments are subject to significant drawdowns as seen in the graph below. Adding long/short commodities to a portfolio provides the ability to generate higher returns, lower risk and achieve better capital preservation than long-only commodities.

Growth of Investment
Hypothetical Growth of a $1000 investment on January 1, 2000 through June 30, 2016

Past Performance is not a guarantee of future results. The referenced indices are not meant to represent the Fund. Long/Short Commodities refers to Morningstar Long/Short Commodity Index; Long-Only Commodities refers to S&P GSCI Commodity Index, Stocks refers to S&P 500 Total Return Index. Source: LoCorr Fund Management.

Index Standardized Returns as of June 30, 2016                       1 Year      5 Years      10 Years
Morningstar Long/Short Commodity Index                                  -2.32%       -3.33%       1.93%
S&P 500 Total Return Index                                                      3.99%       12.10%      7.42%
Barclays Capital U.S. Aggregate Bond Index                               6.00%        3.76%        5.13%
S&P GSCI Commodity Index                                                    -26.08%      -14.03%    -10.18%

Morningstar Long/Short Commodity Index is a fully collateralized commodity futures index that uses the momentum rule to determine if each commodity is held long, short, or flat. S&P 500 Total Return Index is a capitalization weighted unmanaged benchmark index that includes the stocks of 500 large capitalization companies in major industries. This total return index includes net dividends and is calculated by adding an indexed dividend return to the index price change for a given period. Barclays Capital U.S. Aggregate Bond Index is a broad-based bond index comprised of government, corporate, mortgage and asset-back issues rated investment grade or higher. S&P GSCI Commodity Index is a total return index currently comprised of 24 basic commodities. The performance statistics presented for the index do not reflect any trading or administrative costs of investing in the index.
Diversification does not assure a profit nor protect against loss in a declining market. Drawdown refers to a peak-to-trough decline for a specific recorded period. Correlation measures how much the returns of two investments move together over time. Stocks, bonds, and commodities are not guaranteed. Investments in equity securities involve risks such as volatility and the potential for loss of principal. Bonds traditionally experience less volatility than stocks and typically decrease in value when interest rates rise. Investments in commodities markets may have greater volatility than investments in traditional securities. Commodity prices may be influenced by unfavorable weather, animal and plant disease, geologic and environmental factors as well as changes to government regulation such as tariffs, embargoes or burdensome production rules and restrictions.
The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained by calling 1.855.LCFUNDS, or visiting www.LoCorrFunds.com. Read it carefully before investing.
Mutual fund investing involves risk. Principal loss is possible. The Funds are nondiversified, meaning they may concentrate their assets in fewer individual holdings than a diversified fund. Therefore, the Funds are more exposed to individual
stock volatility than a diversified fund. The Funds invest in foreign investments and foreign currencies which involve greater volatility and political, economic and currency risks and differences in accounting methods. The Funds may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Investing in commodities may subject the Funds to greater risks and volatility as commodity prices may be influenced by a variety of factors including unfavorable weather, environmental factors, and changes in government regulations. The Funds may invest in derivative securities, which derive their performance from the performance of an underlying asset, index, interest rate or currency exchange rate. Derivatives can be volatile and involve various types and degrees of risks, and, depending upon the characteristics of a particular derivative, suddenly can become illiquid. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in Asset Backed, Mortgage Backed, and Collateralized Mortgage Backed Securities include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments.
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