Alts Democratized: A Practical Guide to Alternative Mutual Funds and ETFs for Financial Advisors, + Website

Chapter 5Alternative Credit Focus Funds

Synopsis

Booming demand for Alternative Credit Focus Funds has driven assets to record levels as investors search for enhanced yields and active management of interest rate risk. This classification employs a variety of approaches to achieve these goals, ranging from high-risk funds with wide latitude in the search for total returns to low-risk approaches that tread carefully and focus on capital preservation. Our analysis of risk and return shows that many of these funds are attractive as bond complements that will enhance the fixed income allocation of a portfolio, so advisors who do their homework are not searching in vain.

Definition

Funds that, by prospectus language, invest in a wide range of credit-structured vehicles by using either fundamental credit research analysis or quantitative credit portfolio modeling trying to benefit from any changes in credit quality, credit spreads, and market liquidity.

Definition of the Lipper classification: Alternative Credit Focus Funds

Investors have had a steady appetite for Alternative Credit Focus Funds since 2006, and this appetite became voracious in 2013. This recent boom reflects many factors: today's environment of low interest rates, a desire for enhanced income among retirees, and demand for active management of interest rate risk from advisors who are concerned about rising rates. These factors, combined with the retirement of baby boomers, create a bright future for the innovative ...