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

Chapter 12Alternative Multi-Strategy Funds

Synopsis

Alternative Multi-Strategy Funds give investors access to multiple strategies in a single fund. This one-stop shopping has been a popular way to access alternatives, and these funds can be effective portfolio diversifiers. The downside of this approach is layering of fees, short track records, and reduced transparency. In light of these challenges, investors who need diversification and reduced volatility can always consider holding more cash.

Definition

Funds that, by prospectus language, seek total returns through the management of several different hedge-like strategies. These funds are typically quantitatively driven to measure the existing relationship between instruments and in some cases to identify positions in which the risk-adjusted spread between these instruments represents an opportunity for the investment manager.

Definition of the Lipper classification: Alternative Multi-Strategy Funds

Alternative Multi-Strategy Funds allocate assets to a wide variety of alternative strategies simultaneously, either directly or by using a fund of funds (FOF) approach. For example, these funds can use subadvisors to invest in multiple strategies, such as long/short equity, equity market neutral, global macro, and so on. This structure can provide access to traditional hedge funds, albeit with reduced transparency. Although Alternative Multi-Strategy Funds often generate low returns, this classification offers diversification ...