Morningstar's Managed Futures category is one of the smallest and newest. Funds in this category employ primarily trend-following (price momentum) strategies in liquid futures contracts. If a particular futures contract exhibits an upward price trend (according to a moving average or other calculation), the contract is bought. Conversely, these automated strategies short futures contracts with declining prices. Some trend-following strategies invest in ETFs instead of futures
Although trend following managed futures strategies are highly correlated to one another, not all are the same. For example, some strategies diversify across asset classes (equity indexes, government bonds, currencies, and commodities), while others stick to only commodities. It's important to note that long-short momentum-based commodity strategies are not intended to deliver the same returns as long-only commodity products.
Besides investing in different asset classes, managed futures strategies may calculate momentum differently (using an exponential moving average versus an oscillator, for example), or they may identify trends over different time frames (seven months versus 12 months, for example). In addition, some managed futures funds include counter-trend (mean reversion) or discretionary (nonautomated) strategies. Some funds are internally managed, while others have multiple outside advisors.
The Currency category is another one of Morningstar's alternative categories. Currency funds invest in currency futures, forward contracts, or short-term sovereign debt. Typically, these funds bet on foreign currencies appreciating against the U.S. dollar, but some funds may bet on an appreciating U.S. dollar.
Other currency strategies include momentum or carry (long bets on high-yielding currencies and short bets on low-yielding currencies). Most currency mutual funds are actively managed baskets of currencies, but some mutual funds and most ETFs are passively managed. Many currency ETFs are based on single currency pairs, rather than baskets of currencies.
Multialternative funds offer a diversified mix of alternative strategies, accessed through separate accounts, ETFs, or mutual funds. Most, but not all, multialternative funds are also multimanager. Some multialternative funds include allocations to more traditional investments, such as publicly traded REITs or long only commodity strategies.