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Fund Spy

What If? The Liquid Alternatives Edition

We address some questions about our recent study on liquid alternatives’ performance.

In August, we published a study looking at how liquid alternative funds have performed using a methodology that considers not only returns, but also the diversification benefits these funds have offered, as captured by their correlations to other asset classes. The goal of the study was to encourage investors to think about liquid alternative funds’ performance within the context of a broader portfolio. This means looking past absolute returns and considering how those return streams fit into a broader portfolio.

When we applied this performance metric to existing liquid alternatives funds, we found that most weren’t offering much benefit to a generic 60/40 portfolio of stocks and bonds. The findings generated questions from investors, fund companies, and even colleagues at Morningstar. Most of these questions revolved around two topics: The sensitivity of the results to the time period and fees. To address these questions, let's take a page from Marvel Comics and tackle two What If? alternate reality (pun intended) scenarios.