An Alternatives Fund That Could Benefit From Rising Rates

Tayfun Icten: The premise behind an alternative investment strategy is that it provides a unique return driver that is not dependent on market beta, or in other words, systematic risk. Liquid alternative managers look for idiosyncratic return drivers that provide a certain level of downside protection in market stress, while producing attractive risk-adjusted returns in the long run.

As an alternative to fixed income, a merger-arbitrage strategy produces a bondlike risk/return profile with low volatility. The strategy relies on an inherent risk premium embedded in merger deal spreads. This risk premium exists because there is still some chance that an announced deal may not close. Unlike most fixed-income investments, higher interest rates generally mean wider deal spreads, potentially improving strategy returns.

Silver-rated Merger Fund is run by one of the most experienced teams in the industry headed by Roy Behren and Michael Shannon. The managers not only combine legal, investment banking, and equity derivatives experience to evaluate merger deals, but also rely on a proprietary quantitative process to systematically evaluate the deal spreads. This fund's strategy needs a healthy deal flow to generate returns in the long run, but it has rewarded patient investors over the last 10 years.