Jason Kephart: Alternative strategies can be a good option for investors concerned about stock market volatility. For most investors, it may be daunting trying to choose a single alternative strategy or an allocation to alternatives.
Multistrategy funds take some of the guesswork out of the hands of the end investor and offer a more stable ride than many alternative strategies on their own. These funds combine multiple alternative strategies, like long-short equity, managed futures, and merger arbitrage into a single option. They are far less prone to big performance swings, like those seen in managed futures, so they should be easier for investors to stomach while still delivering some diversification benefit to a traditional portfolio of stocks and bonds. The drawback of these strategies is they tend to come at a higher cost than many standalone strategies. The average price tag is close to 1.5%.
Two of our top picks in the category are Principal Global Multi-Strategy and Litman Gregory Masters Alternatives. One thing both managers have in common is they focus on finding strong underlying managers, not trying to time alternative strategies. These funds could be a good entry point into alternatives for investors looking for diversification.