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Add a Dash of Diversifying Spice With This Alternative Fund

Jason Kephart, CFA

Jason Kephart: If you want to be my multialternative fund, you can't get too cozy with my friends, stocks and bonds. That's why this week's Morningstar Medalist is John Hancock Global Absolute Return Strategies (JHAAX).

This global-macro strategy, which is subadvised by Standard Life Investments, was originally designed in 2006 to be the core of Standard Life's pension. What they wanted was a strategy that wasn't overly reliant on stock and bond markets going up to generate returns. Management is targeting cash plus 5% over rolling three-year periods and, so far, since the fund launched in 2011, it has generally hit those targets.

The trades are usually directional or market-neutral in nature. So, they could be long gold miners or long Nasdaq stocks versus short small-cap stocks, and they are making these trades across a variety of markets across the globe.

The key to the fund is the portfolio construction. Each trade is designed to have low correlation to the existing trades in the portfolio so that there's not one bet that's really driving returns. It's super diversified, which is great for smooth risk-adjusted returns.

This fund's 1% returns, year to date, through the end of September probably don't look that great; but given that a traditional 60%/40% fund has lost 4% in that same time period, they are pretty appealing. This fund could be just the diversification spice your portfolio needs.