diversification for the long run

CE Advisor Presentation

Diversification

for the Long Run

For Institutional Investor use only. Not for public distribution.

2For Institutional Investor use only. Not for public distribution. | © 2021 LoCorr Funds

Diversification for the Long Run

• Financial markets are evolving

– The LoCorr Case Study

• There is a different way to diversify

– Low-correlating asset classes

• More product solutions available to individual investors


a) Higher short-term returns with

MORE VOLATILITY?

a) Consistent returns with a

SMOOTHER RIDE?

Investment Goals

What’s more important to you and your clients?

-or-


What has happened since 2000?

• Stock market crashed twice, and

continues to experience volatility

• Bond yields dropped to historic lows

• Cash yields are less than inflation

Investment Landscape

Sources: S&P 500 Index (stock graph), Board of Governors of the Federal Reserve System (US) (bond graph)

S&P 500 Index – January 1, 2000 - December 31, 2020

History of Treasury Yields – January 1, 2000 - December 31, 2020


A Closer Look

During the period of 1/1/2000 to 12/31/2020

• Stocks returned 6.61%

• Bonds returned 5.15%

• A diversified Stock / Bond portfolio returned 6.35%

• Traditional diversification has worked

Will “traditional” diversification work going forward

with interest rates so low?

Source: Morningstar. Stocks are represented by the S&P 500 Index. Bonds are represented by the Bloomberg Barclays Aggregate Bond Index. The diversified portfolio is represented by 60% S&P 500 Index and 40%

Bloomberg Barclays Aggregate Bond Index. Portfolio rebalances monthly.


The LoCorr Case Study

Case Study: Invest $1,000,000 in S&P 500 Index during 2000-2020: $3,838,598

Source: Morningstar. Past Performance is not a guarantee of future results. The referenced index is not meant to represent the Fund. It is not possible to invest directly in an Index. This chart illustrates the performance of a hypothetical $1,000,000 investment made on 1/1/2000. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Assumes reinvestment of dividends and capital gains but does not reflect the effect of any applicable sales charge or redemption fees. This chart does not imply any future performance.


The LoCorr Case Study – Miss 5 Best Days

Miss 5 best days a year (20 years) – Initial $1,000,000 invested shrank to $133,282

Source: Morningstar. Stocks are represented by the S&P 500 Index. Past Performance is not a guarantee of future results. The referenced index are not meant to represent the Fund. It is not possible to invest directly in an Index. This chart illustrates the performance of a hypothetical $1,000,000 investment made on 1/1/2000. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Assumes reinvestment of dividends and capital gains but does not reflect the effect of any applicable sales charge or redemption fees. This chart does not imply any future performance.

You would have lost more than 85% of your capital by missing the 5 best days each year.

You need to stay invested!


The LoCorr Case Study – Miss 5 Worst Days

Miss 5 worst days a year (20 years) – Initial $1,000,000 invested grows to $135,491,807

The opportunity to miss the worst days is greater than the risk of missing the best days.

Source: Morningstar. Stocks are represented by the S&P 500 Index. Past Performance is not a guarantee of future results. The referenced index are not meant to represent the Fund. It is not possible to invest directly in an Index. This chart illustrates the performance of a hypothetical $1,000,000 investment made on 1/1/2000. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Assumes reinvestment of dividends and capital gains but does not reflect the effect of any applicable sales charge or redemption fees. This chart does not imply any future performance.


Building a Better Portfolio

• As an advisor your role is to help clients create a financial plan which involves

staying invested – no one can time the markets

– You CAN NOT afford to miss the best days

– You also NEED TO HELP PREPARE for the bad days

• So how do you achieve “consistent returns”?

• A possible option is Low-Correlating Assets, which allows you to stay invested

and potentially “smooth out returns”


Example: 60 Equity/40 Corporates

60% S&P 500 – 40% Corporate Portfolio over the last 20 years:

+6.0% Return from Bonds

+8.6% Return from Stocks

= +7.8% total return over 20 years

The Corporate Bond interest rate dropped from +7.2% to +2.8% over the last 20 years.

10

• Bonds have done well as interest rates have dropped

• Where will rates go from here?

For Institutional Investor use only. Not for use with the public.

Time period 7/1/01-6/30/21. Corporate portfolio represented by BBgBarc US Credit Corporate 5-10 Year Index. Corporate Bond interest rate represented by the Moody’s Seasoned

Aaa Corporate Bond Yield (monthly), not seasonally adjusted. Monthly rebalancing and rounding over time accounts for the return difference between the hypothetical portfolio and

underlying indexes. Past performance does not guarantee future results. Index performance is not illustrative of Fund performance. One cannot invest directly in an index. Fund

performance may be obtained by calling 1.855.LCFUNDS, or visiting www.LoCorrFunds.com.


How much might a change in interest rates impact various fixed income categories?

11For Institutional Investor use only. Not for use with the public.

The interest rate tables in the presentation are utilizing a modified duration calculation. Modified duration is a formula that expresses the measurable change in the value of a

security in response to a change in interest rates. Modified duration follows the concept that interest rates and bond prices move in opposite directions. This formula is used to

determine the effect that a 100-basis-point (1 percent) change in interest rates will have on the price of a bond. Modified duration measures the average cash-weighted term to

maturity of a bond. Modified duration is an extension of something called the Macaulay duration, which allows investors to measure the sensitivity of a bond to changes in interest

rates. In order to calculate modified duration, the Macaulay duration must first be calculated.

Treasury 5-10 Year represented by BBg Barc US Treasury 5-10 Year Index, Corporate Credit 5-10 Year represented by BBgBarc US Credit Corp 5-10 Year Index, Treasury 1-3

Year represented by BBgBarc US Treasury 1-3 Year Index, Corporate Credit 1-3 Year represented by BBgBarc US Corporate 1-3 Year Value Index, Mortgage Backed Securities

represented by BBgBarc US Mortgage Backed Index, Asset Backed Securities represented by Barclays Asset Backed Index, Bloomberg Barclay’s Aggregate Bond represented by

Bloomberg Barclays US Aggregate Value Index. One cannot invest directly in an index. The data reflects the duration of each index. This is the interest rate sensitivity. Therefore, if

there is a +100 basis point move in rates, how will performance change? Assumptions used: 1) rates moves are in a parallel fashion; 2) rate moves are in a gradual fashion over the

horizon (as opposed to immediate at time zero); c) bonds that mature are reinvested at the 2-year swap rate. Data as of 6/30/21.

Interest Rate Movement (bps)

-100 -50 0 +50 +100

Bond Index Price impact after 1-year (based on duration as of 6/30/21)

Treasury 5-10 Year 8.0% 4.9% 2.0% -0.9% -3.6%

Corporate Credit 5-10

Year8.4% 5.5% 2.7% -0.1% -2.8%

Treasury 1-3 Year 1.3% 0.9% 0.4% -0.0% -0.5%

Corporate Credit 1-3 Year 1.6% 1.2% 0.8% 0.3% -0.1%

Mortgage-Backed

Securities3.2% 2.7% 1.6% -0.1% -2.1%

Asset-Backed Securities 1.7% 1.2% 0.7% 0.2% -0.3%

BBgBarc US Agg Bond

Index7.2% 4.5% 1.7% -1.0% -3.6%

This example shows the impact a

change in interest rates could have

on bonds. Other factors could affect

index returns, but this hypothetical

example ignores the impact of

convexity and illustrates the

approximate sensitivity to interest

rates, otherwise known as duration.

Generally, bond values move

inversely to interest rates. As a

general rule, for every 1% change in

interest rates (increase or decrease),

a bond’s price will change

approximately 1% in the opposite

direction, for every year of duration.

The scale of possible interest rate

changes (-100 bps, -50 bps,

unchanged, +50 bps, +100 bps) was

chosen to represent a symmetrical

scale in rate movements. Rates can

change more or less than in these

examples.

Hypothetical

Illustration of Interest

Rate Movement


In a hypothetical

60% equity/

40% fixed income

portfolio, what type of

return would be

needed from equities

to maintain an overall

portfolio return of 5%

in a variety of rate

change environments?

Matrix for a 60/40 Portfolio Returning 5%

12For Institutional Investor use only. Not for use with the public.

The data is related to the table on slide 6. If a portfolio consists of 60% stocks and 40% bonds, how

much return is needed from stocks when bonds are down or up x%? The table above shows the

returns needed from stocks to generate an overall portfolio return of 5%. No equity returns being

assumed. No fees or taxes are being included. Stocks are represented by S&P 500. This is a hypothetical example intended for illustrative purposes only. It does not

represent the returns of any actual investment or take into account the effects of taxes, fees, or other expenses that would

reduce returns. It should not be considered investment advice or a forecast or guarantee or future results. Illustrations of

hypothetical principles have inherent limitations and cannot account for future economic conditions. Results may vary. Past

performance does not guarantee future results. Index performance is not illustrative of Fund performance. One

cannot invest directly in and index. Fund performance may be obtained by calling 1.855.LCFUNDS, or visiting

www.LoCorrFunds.com. Data as of 6/30/21.


-100 -50 0 +50 +100

Bond Index Equity contribution

Treasury 5-10 Year 3.0% 5.1% 7.0% 8.9% 10.8%

Corporate Credit 5-10 Year 2.7% 4.7% 6.6% 8.4% 10.2%

Treasury 1-3 Year 7.4% 7.8% 8.1% 8.4% 8.7%


Mortgage-Backed Securities 6.2% 6.6% 7.3% 8.4% 9.7%

Asset-Backed Securities 7.2% 7.6% 7.9% 8.2% 8.5%

BBgBarc US Agg Bond Index 3.5% 5.4% 7.2% 9.0% 10.7%

Hypothetical Illustration of Interest Rate Movement

http://www.locorrfunds.com/


Matrix for a 60/40 Portfolio Returning 7%

In a hypothetical

60% equity/

40% fixed income

portfolio, what type of

return would be

needed from equities

to maintain an overall

portfolio return of 7%

in a variety of rate

change environments? 13For Institutional Investor use only. Not for use with the public.

The data is related to the table on slide 6. If a portfolio consists of 60% stocks and 40% bonds, how

much return is needed from stocks when bonds are down or up x%? The table above shows the

returns needed from stocks to generate an overall portfolio return of 7%. No equity returns being

assumed. No fees or taxes are being included. Stocks are represented by S&P 500. This is a hypothetical

example intended for illustrative purposes only. It does not represent the returns of any actual investment or take into

account the effects of taxes, fees, or other expenses that would reduce returns. It should not be considered investment

advice or a forecast or guarantee or future results. Illustrations of hypothetical principles have inherent limitations and

cannot account for future economic conditions. Results may vary. Past performance does not guarantee future results.

Index performance is not illustrative of Fund performance. One cannot invest directly in and index. Fund

performance may be obtained by calling 1.855.LCFUNDS, or visiting www.LoCorrFunds.com. Data as of 6/30/21.


-100 -50 0 +50 +100

Bond Index Equity contribution

Treasury 5-10 Year 6.4% 8.4% 10.4% 12.3% 14.1%


Treasury 1-3 Year 10.8% 11.1% 11.4% 11.7% 12.0%


Mortgage-Backed Securities 9.5% 9.9% 10.6% 11.7% 13.1%

Asset-Backed Securities 10.5% 10.9% 11.2% 11.6% 11.9%

BBgBarc US Agg Bond Index 6.8% 8.7% 10.5% 12.3% 14.1%

Hypothetical Illustration of Interest Rate Movement

http://www.locorrfunds.com/


How does your current portfolio look?

Parking your clients’ capital in

fixed income investments with low

yield and potential asymmetric

risk profile could prove

detrimental to portfolio returns.

14



Goal of Asset Allocation

Balanced Portfolio

Examples of Traditional Asset Allocation

Adding

Bonds

Emerging

Market Stocks

International

Stocks

Using Equity

Style Boxes


15


For Institutional Investor use only. Not for use with the public. 16

How Much of Your Portfolio is Tied to the S&P 500?

Value Blend Growth

Large

Mid

Small

International

Stocks

Emerging

Market Stocks

0.98

0.96

0.90

1.00

0.96

0.92

0.98

0.95

0.92

0.89

0.79

High-Yield

Bonds

0.73

Source: Morningstar Direct 1/1/2008 – 6/30/2021. Large Value represents the Russell 1000 Value Index which is an unmanaged index considered representative of large-cap value stocks. Large Blend represents the Russell1000 Index which is an unmanaged index considered representative of large-cap stocks. Large Growth represents the Russell 1000 Growth Index which is an unmanaged index considered representative of large-cap growth stocks. Medium Value represents the Russell Midcap Value Index which is an unmanaged index considered representative of mid-cap value stocks. Medium Blend represents the Russell Midcap Index which is an unmanaged index considered representative of mid-cap stocks. Medium Growth represents the Russell Midcap Growth Index which is an unmanaged index considered representative of mid-cap growth stocks. Small Value represents the Russell 2000 Value Index which is an unmanaged index considered representative of small-cap value stocks. Small Blend represents the Russell 2000 Index which is an unmanaged index considered representative of small-cap stocks. Small Growth represents the Russell 2000 Growth Index which is an unmanaged index considered representative of small-cap growth stocks. International Equities are represented by MSCI EAFE Index which was designed to measure the equity market performance of developed markets outside of the U.S. & Canada. Emerging Markets is represented by MSCI Emerging Markets Index that is designed to measure equity market performance in global emerging markets. High-Yield Bonds are represented by the Bloomberg Barclay Global High-Yield TR Index that provides a broad-based measure of the global high-yield fixed income markets. Past Performance does not guarantee future results.

Maybe More Than You Think

Correlations to the S&P 500

Index


10-Year Treasury Yield – 1/1/1981-6/30/2021

Bonds?

Source: FRED, Board of Governors of the Federal Reserve System (US). Graph illustrates the 10-Year Treasury constant maturity rate by percent, daily, not seasonally adjusted. Treasury Bills are guaranteed as to the timely payment of principal and

interest and are backed by the full faith and credit of the U.S. Government. Past Performance does not guarantee future results.

8.28%

5.28%

3.00%

30 Years Ago

20 Years Ago

10 Years Ago

1.52%

Now(6/30/21)



Can Bonds Provide Downside Mitigation Going Forward?

With bond yields near historic lows, are bonds providing the desired potential downside

mitigation benefits?

Bonds Short-Term Bonds

Bonds

-19.4%

-13.0%

-18.6%

-15.6%

-55.3%

Source: Morningstar Direct. The above data represents total returns for mentioned Indices and time periods. Stocks are represented by the S&P 500 Index. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Short-

term bonds are represented by the Bloomberg Barclay US Agg 1-3 Year TR Index. Spring 2020 represents 2/20/20-3/23/20. Fall 2018 represents 9/21/18-12/24/18. Summer 2015-Winter 2016 represents 7/21/15-2/11/16. Summer 2011

represents 4/30/11-10/3/11. Summer 2010 represents 4/24/10-7/2/10. Fall 2007-Spring 2009 represents 10/10/07-3/9/09. Bond Duration is an approximate measure of a bond's price sensitivity to changes in interest rates. Past Performance

does not guarantee future results.

1.1%

0.7%

0.8%

1.0%

7.5%

1.6%

3.0%

5.4%

3.0%

7.2%

Total Returns

-33.8% 0.4%-0.9%

Fall 2018

Summer 2015 - Winter

2016

Summer 2011

Summer 2010

Fall 2007 - Spring 2009

Spring 2020


Stocks


The Benefit of “Crisis Alpha”

Performance of Alternatives, as measured by the Barclays CTA Index, in Significant S&P 500 Drawdowns

between January 1, 1987 and June 30, 2021

Source: Morningstar Direct. The chart shows the significant S&P drawdowns between 1/1/87 and 6/30/21 using month-end data. Past Performance does not guarantee future results.

Past Impact of Alternatives in Equity Drawdowns



What can you do?

The Traditional 60/40 Needs to be Re-examined.

60% Equity &

40% Fixed income

60% Equity &

40% Diversifiers

When should this issue be addressed? With rates reaching all-time lows, the time is

now.

20


What They Know … And You Should Know

• Universities and endowments have been allocating assets to low correlating

investments for decades

• Broaden portfolio with low correlating investments

• Goal: Enhance long-term performance with lower risk

Growth of Low Correlating InvestmentsUniversity Endowment Allocation

Source: NACUBO.org. Data is based on endowments with greater than $1 billion in investment assets.


Are Endowments that Different?

• Endowments have different buying power and staying power than the individual

investor – and subsequently, different returns

• The investment objectives are often similar to those of individuals

Endowment Objectives

Reduce Risk

Increase Capital

Steady Income Stream

Client Objectives

Reduce Risk

Preserve Capital

Upside Growth in the Market

Reduce risk and increase potential for positive returns


Growth in Low Correlating Assets (Alternative Investments)

Trends to transform Asset Management:

“Alternatives will play a central role in getting economies

back on their feet and laying a foundation for growth

while boosting risk-adjusted financial return.”*

Alternative investments expected to grow 9.8% annually,

to reach $17 trillion by 2025**

“Alternative assets are proving to be highly

resilient to the disruption of COVID, and

an attractive and growing destination for

LPs’ capital”.**

*PwC 2020 study: Asset and Wealth Management Revolution: The Power to Shape the Future. pwc.com/gx/en/industries/financial-services/assets/wealth-management-2-0-data-tool/pwc_awm_revolution_2020.pdf

pg. 7-9. **Preqin 2020 Study: The Future of Alternatives 2025. preqin.com/future.

“Given the volatility in capital markets,

further allocation to alternatives would

increase diversification and lower

short-term fluctuations in

investment valuations”*


How to Position with Clients

• The investment landscape has changed

– The 60/40 traditional portfolio may no longer give you the diversification benefits you seek

• Endowments have shown the way to better diversification by using low-correlating

investments

• Focus on the potential benefits of the investment by seeking to:

– Smooth out the returns

– Create a “seatbelt” in your portfolio

– Preserve capital

• Consider recommending a meaningful percentage of the portfolio


Summary

• Financial markets have changed and continue to evolve

– Equity markets remain more volatile with high correlation to each other

– Cash yields are less than inflation

– Bonds are in jeopardy if inflation returns

• Endowments and foundations have led the way

– Low-correlating asset classes available to individual investors

• Low-correlating assets are modern-day diversifiers

– They can help reduce volatility in a portfolio as well as

– Provide the potential for enhanced returns


LoCorr Funds

A Possible Solution – Low-Correlating Assets

Macro Strategies

Fund

Seeks to provide:

• Low correlation to all markets

• Outperformance of the equity market

• Less downside volatility in portfolio

Long/Short Commodities Strategy Fund

Seeks to provide:

• Participation in commodity upswings and protection in downswings

• Additional diversification

• A hedge against inflation

DynamicEquity Fund

Seeks to provide:

• Ability to participate in both up and down markets

• Protection in down markets

• Complement to long-only

Spectrum

Income Fund

Seeks to provide:

• Consistent dividend

• Low correlation to bonds

• Protection in rising interest rate environments

Market Trend

Fund

Seeks to provide:

• Low correlation to almost all indices

• Positive performance in down equity markets

• Equity plus returns

Need strategies that don’t

move like stocks and

bonds?

How are you allocated for a

potential equity downturn?

Looking for an investment

that strives to provide

income?

Looking for an equity

strategy that is not long-

only?

Seeking a potential hedge

against inflation?

Class A Class C Class I

LFMAX LFMCX LFMIX


LCSAX LCSCX LCSIX


LEQAX LEQCX LEQIX


LSPAX LSPCX LSPIX


LOTAX LOTCX LOTIX


The performance of various indices is shown for comparison purposes only. The performance of those indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness. Unless noted otherwise, index returns do not reflect fees or transaction costs and reflect reinvestment of net dividends. Past performance is not a guarantee of future results.

Diversification does not assure a profit or protect against loss in a declining market.

The referenced indices are shown for general market comparisons and are not meant to represent any Fund discussed within. One cannot invest directly in an index. Moreover, pro forma results have inherent

limitations in that they do not reflect actual trading in any program account and therefore they do not reflect the impact that economic or market factors may have had on the management of the fund. Combining

actively managed futures investments with passive investment indices has material inherent limitations. Passive indices are unmanaged and do not incur management fees, transaction costs or other expenses

associated with a managed futures portfolio. The foregoing presentation does not represent any actual portfolio composition but only the possible results which might have occurred had managed

futures been included in a traditional portfolio during the period shown. The risk of a managed futures portfolio incurring sudden, major losses is not reflected in the foregoing chart, which is

based on statistical averages over time.

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. Non-diversified investments may concentrate assets in fewer individual holdings than diversified investments. Therefore, the

investments are more exposed to individual stock volatility than diversified funds. The Funds invest in foreign investments and foreign currencies which involve greater volatility and political,

economic and currency risks and differences in accounting methods. These risks are greater for emerging markets. 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. Investments in small- and medium-capitalization companies involve additional risks such as

limited liquidity and greater volatility. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. ETF investments are

subject to investment advisory and other expenses, which will be indirectly paid by the Funds. As a result, the cost of investing in the Funds will be higher than the cost of investing directly in

ETFs and may be higher than other mutual funds that invest directly in stocks and bonds. ETFs are subject to specific risks, depending on the nature of the ETF. A Fund’s real estate portfolio may

be significantly impacted by the performance of the real estate market generally, and the Fund may be exposed to greater risk and experience higher volatility than would a more economically

diversified portfolio. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural, or technological developments. Investments in Limited

Partnerships (including master limited partnerships) involve risks different from those of investing in common stock including risks related to limited control and limited rights to vote on matters

affecting the Limited Partnership, risks related to potential conflicts of interest between the Limited Partnership and the Limited Partnership’s general partner, cash flow risks, tax risk, dilution

risks and risks related to the general partner’s limited call right. Underlying Funds are subject to management and other expenses, which will be indirectly paid by the Fund.

The LoCorr Funds are distributed by Quasar Distributors, LLC. All rights reserved.

Additional Disclosure and Footnotes

LC 3506 (1/21)

diversification for the long run

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