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Alts Democratized: A Practical Guide to Alternative Mutual Funds and ETFs for Financial Advisors, + Website by Robert J. Martorana, Jessica Lynn Rabe

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Chapter 4Alternative Active Extension Funds

Synopsis

Alternative Active Extension Funds is a homogenous classification with a high correlation to U.S. equities, though leverage creates higher volatility than the large-cap benchmarks that these funds mimic. These funds have a narrow range of returns and have historically had higher drawdowns than the S&P 500. Thus, this classification is less alternative than most other Lipper classifications, and is best suited to the role of equity complement in diversified portfolios. The JPMorgan U.S. Large Cap Core Plus Fund dominates the space with an 86 percent market share of total net assets, making this the most concentrated of Lipper's 11 alternative classifications.

Definition

Funds that combine long and short stock selection to invest in a diversified portfolio of U.S. large-cap equities, with a target net exposure of 100 percent long. Typical strategies vary between 110 percent long and 10 percent short to 160 percent long and 60 percent short.

Definition of the Lipper classification: Alternative Active Extension Funds

Alternative Active Extension Funds have boomed since 2007, as investors seek exposure to equities with the potential for enhanced returns. These funds hold long and short positions in a diversified portfolio of equities, with varying exposures. The 130/30 funds are the most popular version of this strategy, and the process starts when managers go long $100 in stocks they find attractive, and short $30 in stocks ...

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