How Have Alts Medalists Performed?

This article was originally published in the August 2017 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor here.

Liquid alternative funds are hedge-fund-like strategies available in a '40 Act fund that seek to provide alternative (little or no equity or bond beta) sources of returns, and therefore diversification, to a stock-bond portfolio.

Currently, most of these alternative mutual funds have short track records and are rather pricey. As a result, we have no funds with a Morningstar Analyst Rating of Gold, only seven Silver-rated funds, and 25 Bronze-rated funds.

In addition, over the past few years, it has been difficult for these funds to demonstrate their diversifying capabilities, as equity markets continued their multiyear rally. Performance in 2017 is looking a little better, but liquid alternative funds still face tough comps against a rallying market.

Below are funds that have earned Morningstar Medalist ratings with good processes and experienced managers.

Silver-rated

In late 2016,

Managers of merger-arbitrage strategies need to assess the reason for a merger, the terms of the merger, any regulatory issues that may hinder the merger, and the likelihood of the merger actually occurring. Experience in analyzing deals is key, and Alex Graham, the portfolio manager of Bronze-rated

There is only one currency fund that Morningstar recommends--