Home>Video>Alternative Funds Finding New Ways to Hedge

Alternative Funds Finding New Ways to Hedge

Thu, 26 Jun 2014

More alternative asset managers are considering funds of hedge funds, but investors should keep in mind these portfolios' short track records.


Video Transcript

Jason Kephart: Multialternative funds really got on investors' radars last year. The category took in $9 billion of inflows, almost triple its previous high, and it's taken another $4 billion so far this year. These funds are designed to lower the overall volatility of a portfolio without lowering overall returns.

One of the trends we've seen really driving the growth of the category is the emergence of mutual funds of hedge funds. Firms like Goldman Sachs, Franklin Templeton, and Neuberger Berman have all launched funds that offer investors access to true hedge fund managers and strategies in the last couple of years. Hedge fund managers had been reluctant to offer their strategies in 40 Act funds before, but given how the fund of hedge fund space is drying up and the growth of liquid alternatives, we are seeing more of them open to it.

One of the problems with these funds is that they haven't really been around in the type of volatile environment you'd want to see them protect against. So they are a little bit of an unknown in how they will react in those kind of environments.

One fund we do like in the category is Arden Alternative Strategies; we have it rated Bronze. One of the things we like about Arden's management is they have a long track record in the fund of hedge fund space. So we are confident that they will be able to translate some of that over to the mutual fund space. Given that a lot of these funds don't have a long track record yet, investors are best-served taking a cautious approach to using them.

  1. Related Videos
  2. Related Articles
  1. This Expensive Fund May Be Worth It

    This fund has to overcome a major hurdle with its expenses, but it has far exceeded expectations in a short time frame.

  2. A Low-Expense Alternative to Bonds

    This merger-arbitrage fund has little correlation to the broader equity and fixed-income markets and has a very low expense ratio.

  3. What's So Attractive About Nontraditional Bond Funds?

    Fears of rising rates have driven large flows to the category, but investors must take care to not eliminate the 'insurance' that core fixed-income funds offer.

  4. Bank Loans Not the Same as Money Markets

    The risk of bank-loan defaults is muted at the same time investor demand for such products remains elevated, but this volatile asset class is not for near-term cash needs, says Fidelity's Eric Mollenhauer.

  5. Investors Still Beating a Path to Bonds

    October data show continued inflows for bonds (including riskier fixed-income assets), while investors withdrew money from U.S. stock mutual funds and ETFs.

  6. Gold Stocks Ready to Outperform

    Although gold equities have lagged the performance of bullion, miners will do a much better job of executing and delivering margin expansion to investors, says Fidelity's Joe Wickwire.

  7. Will Trends Reverse for Managed Futures?

    AQR's Brian Hurst discusses why trend-following strategies have struggled recently and how his firm is positioning its managed futures portfolios to offer investors a smoother ride.

  8. Calamos: Convertibles Still Viable Asset Class

    Despite their complexities, investing in convertible securities and market-neutral strategies makes sense amid heightened volatility and uncertainty, says Calamos Investments' John Calamos.

blog comments powered by Disqus
Upcoming Events

©2014 Morningstar Advisor. All right reserved.