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Morningstar Adds New Alternative Categories

Plus, Janus reshuffles, Vanguard defends active funds, PIMCO Total Return and Fairholme updates, and more.

Ryan Leggio, Fund Analyst, 05/16/2011

Morningstar has added two "alternative investment" categories for mutual funds within the Morningstar category system.

Alternative investment strategies can involve the purchase of assets that aren't stocks, bonds, or cash. They also can significantly employ leverage and bets that securities will decline in value.

Morningstar categorizes funds based on their investment styles, so that investors can make meaningful comparisons among the funds such as ranking them by total returns or volatility.

The new alternative categories for funds follow:

* Managed Futures: These funds typically take long and short positions in futures or other derivative contracts based on market trends or momentum. (A long position is a bet an investment will gain in value, while a short position is a bet that an investment will decline in value.)

* Multialternative: These funds will use a combination of strategies such as taking long and short positions in equity and debt, trading futures, or using convertible arbitrage, among others.

Morningstar added these categories following a proliferation of alternative investment funds that was sparked by a raft of investment in these kinds of strategies.

"More than 400 alternative mutual funds and ETFs launched in the last five years, including more than 100 last year alone. And investors poured almost $38 billion into these funds in 2010," said John Rekenthaler, vice president of research for Morningstar.

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