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Category Overview: Multialternative Funds

Growth of multialternative funds is accelerating.

Philip Guziec, CFA, 07/11/2013

Growth of the one-stop-shop alternative mutual fund category is accelerating.  After the launch of 17 new multialternative funds and inflows of more than $4 billion in 2012, 13 new multialternative funds emerged during the first half of 2013, bringing the total number of open end funds in the category to 96. Also, $3.1 billion had flowed into the category through May 2013. 

Interest in the category is not the result of stunning performance, unfortunately. The category average return was 3.5% in 2012 and negative 0.1% for the first half of 2013, distantly trailing a 60/40 portfolio of the S&P 500 and the Barclays U.S. Aggregate Bond Index over the same periods (11.3% in 2012 and 7.1% in the first half of 2013). Funds employing more active hedge-fund-like strategies received the bulk of the category's inflows. Over the last six months, John Hancock Global Absolute Return Strategies JHAAX saw the greatest inflows ($1.86 billion), followed by AQR Multi-Strategy Alternative ASAIX($422 million).  John Hancock and AQR’s funds have returned 7.5% and 2.4% in 2012, and 1.2% and 2.4% in the first half of 2013, respectively. John Hancock’s offering is subadvised by Standard Life Investments, which runs the funds in-house using a mix of long short equity, fixed income, and currency and volatility strategies.  AQR runs an in house mix of 9 alternative strategies, including managed futures, long-short equity, and convertible arbitrage. 

The fund’s sole medalist, Bronze-rated IQ Alpha HedgeStrategy IQHIX, attempts to replicate the strategies of a group of hedge fund managers, and tries to forecast and overweight strategies that will outperform.  The fund lost 47 million in the first six months of 2013, after posting a 4.8% return in 2012 and a 1.4% decline in the first half of 2013.   


Philip Guziec, CFA, is Morningstar's derivatives investing strategist. He leads Morningstar's OptionInvestor service, which applies Morningstar's fundamental research methodology and fair value estimates on 2,000 stocks to uncover option investing opportunities. Guziec joined Morningstar in 2003 after a career as an engineer and management consultant. Learn more about OptionInvestor.
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