US Videos

Lots of Positives for This Alts Fund

Patricia Oey

Patricia Oey: Dreyfus Dynamic Total Return is an alternative fund that seeks to generate returns by exploiting asset class mispricings by taking long or short positions in equities, bonds, commodities, and currencies from around the world. The managers' allocation process begins by developing forward-looking views for asset classes, generally at the country level. These forecasts are based on both macroeconomic factors as well as valuation. A mean-variance optimization process is run daily to set the specific allocations. 

Management incorporates several metrics into its risk-management process, including a short-term risk model, a longer-term macro model designed to identify recession risk, and scenario analysis. The managers have considerable latitude in allocating the fund's assets and may use derivatives, ETFs, as well as stocks and bonds for exposure to a particular asset class. 

Historically, this fund has exhibited higher correlations to global equities, relative to its multialternative peers, which suggests that it has the potential to see larger declines in a falling equity market, and thus provide less diversification benefits. At the same time, this fund has benefited from its higher than average equity exposure, and has thus exhibited above average returns, relative to peers.

This fund is subadvised by Dreyfus affiliate Mellon Capital, which has a large research team backing the fund. Unlike many liquid alternative funds that tend to have short track records, this fund has been around for more than a decade, and four of the five co-leads have been running the fund since 2010. Another positive is its below average fees. The share class charges 1.44%, which is lower than the group median of 1.81%.