Advisor Insights

Mapping Alternatives

Jason Kephart, CFA

Alternative strategies come in many different varieties, and funds within the same Morningstar Category that pursue very similar strategies can still have very different diversification characteristics. To help investors gauge a fund’s diversification potential, we launched the Morningstar Style Box for alternative funds in October 2016. This research framework, now available in Morningstar Direct, allows investors to quickly and intuitively evaluate liquid alternatives investments.

In this article, we use the alternatives style box to demonstrate the importance of making good comparisons and conducting thorough evaluations when analyzing alternative investments. We take a bottom-up look at the alternatives universe by placing each liquid alternative fund into one of the style box’s nine regions. We find significant diversity among alternative strategies, even among those in the same Morningstar Category.

Jason Kephart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.