After a complacent 2017, liquid alternative funds have had a chance to show their mettle or lack thereof. From Jan. 26 through Feb. 8, the Dow Jones Industrial Index fell 10% and the S&P 500 fell just over 9%. It's a short period, but it's the type of painful decline that liquid alts are designed to help alleviate. While the correction may continue, it's a good time to check in on how liquid alternatives and our Morningstar Medalists--funds that we recommend after a thorough due-diligence process--have done during the sell-off.
In the following, we’ll take a category-by-category look at how liquid alternative categories and our medalists performed during the correction. We’ll also compare our medalists’ returns with the S&P 500 to see if they offered some protection. Why not compare them to bonds? Bonds are the original alternative investment to stocks. Most alternative strategies shouldn’t be funded from that asset class if the goal is to lower overall risk, since the majority of a traditional portfolio’s risk comes from stocks.
Jason Kephart, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.