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Investors Are Dumping ‘Alt’ Funds; Precisely The Wrong Time?
Anytime an investor dumps his/her alt-funds is the RIGHT time for the investor.
One performance attribute which I expect from an alt fund is consistent, absolute returns. If they cannot consistently deliver positive results, why not just buy something like Vanguard Wellesley? When alt-managers --- such as Marketfield -- are given broad (dare I say, 'unconstrained') allocation authority, they better get it right.
Investors aren't paying alt-funds management fees for the manager to make wrong bets (we amateurs can do that just fine, and save ourselves the E/R).
edit/post-scriptum: I will give a nod to chinfist, that there are a handfull of merit-worthy alt funds. Notably, the Robeco/Boston Partners funds (most of those now closed to new investors); and some others. Unfortunately, as has been seen with MFLDX, alt funds look like a 'safe bet' for consistent returns -- until they fail and fail miserably.
Gotta love these self-promoting articles from Barrons. Concur with Edmond assessment. Through the market's ups and downs, Vanguard Wellesley is a solid and consistent fund with an expense ratio unmatched by any ALT funds. In the past 10 years the annual total return is over 7.1% while charging 0.16% fee.
Anytime an investor dumps his/her alt-funds is the RIGHT time for the investor.
Absolutely. A lot is made about investors not achieving returns of a fund because of selling at wrong time. What about investor having bought wrong fund for his risk profile and selling?
Hindsight always 20-20. I have several examples when I should have sold didn't and went on to have bigger losses. I have stopped regretting selling ANY fund.
Gotta love these self-promoting articles from Barrons. Concur with Edmond assessment. Through the market's ups and downs, Vanguard Wellesley is a solid and consistent fund with an expense ratio unmatched by any ALT funds. In the past 10 years the annual total return is over 7.1% while charging 0.16% fee.
Of course. They are all peddlers. However, generally speaking everyone writes "I told you so articles" after the fact. Only individual investor knows what his/her situation is.
Chinfist, what is the goal of owning 4 Alternative funds in a portfolio. Just curious on the thinking behind this. In asking that question I do have a bias. I myself wouldn't own 4 of any type kind similar fund category where all funds had the same goal. These "alternative" funds just do not out perform a typical balanced fund over time. And 4 of them? What is the goal?
Chinfist, what is the goal of owning 4 Alternative funds in a portfolio. Just curious on the thinking behind this. In asking that question I do have a bias. I myself wouldn't own 4 of any type kind similar fund category where all funds had the same goal. These "alternative" funds just do not out perform a typical balanced fund over time. And 4 of them? What is the goal?
These funds might not outperform a balanced fund over time (particularly if you are looking at performance during a decreasing interest rate environment as we have had). These funds are not meant to replace the performance of a balanced fund. If comparing to a balanced fund, they would mostly be meant to replace the bond portion of a balanced fund. My portfolio mostly consists of dedicated stock funds, with alternative funds thrown in.
I own a lot of mutual funds, as I like to diminish manager risk. I understand some would disagree with that strategy, but that is what I do. I have owned a bunch of alternative funds over the years, some of them bad or useless, and have whittled them down to the few I have left, as 3 of them are doing what I want them to do (providing low relatively consistent returns with low volatility…these take the place of the bond portion of a balanced fund, as I was concerned with interest rate risk when I had purchased them. I wanted investments that would not be impacted by interest rates).
The 4 alternative investments I have are not the same. Only 3 of these have similar goals of absolute returns with low volatility, which are QVOPX, HFXIX and AZIIX, and these 3 use different strategies to get there. MCXIX, tries to generate returns any way it can while taking on more risk compared to the other funds through macro/commodity bets and alternative type strategies. The outsized gain of 53% YTD return shows this. When delving into the alternative type funds, because many of these funds have been unsuccessful, I find it even more important to spread my bets among these funds. So far I have liked all of these funds for the role they play in my portfolio.
Edmond's initial take is essentially correct. These funds struggle for a number of reasons. Higher operating costs is one. More significant I think, investors aren't willing to endure prolonged losses when the alternative investments these funds invest in fail to keep pace with whatever the hot trend is. So managers have to deal with unusually large inflows and outflows (MFLDX case in point). Churn and trading costs must be horrible. The last guy to flee usually pays the highest price.
BTW: Probably the most widely owned alternative investment is one's home. This one works for a number of reasons: (1) We tend not to check our home's value daily or weekly, (2) Mortgage costs/constraints prohibit frequent buying and selling, (3) Packing up and moving from home to home is just too much trouble.
Bottom line: Investors want "alternative" funds, but they don't want "alternative" returns. Just MHO.
M* just posted a timely article re Alt-funds, including trailing 5-year asset-weighted returns of Alt-funds vs. other OEF asset-classes, and separately showing those alt-funds by strategy.
The returns were really UN-inspiring. To be sure there are a few decent alt funds, but it really looks like they are the exception to the rule. With the data in, it appears the fund industry has a lot more marketing people good at peddling alt-strategies than they have managers who can successfully and consistently execute alt-strategies. And most alt-funds charge higher fees than plain-vanilla stock/bond funds. -- I've mentioned before, and will re-iterate here, the real "alt-strategy" is the marketing strategy of the mutual fund companies -- attempting to divert a portion of the 'tsunami' of money which has and is moving from active management to low-cost indexation/ETFs.
I will posit one other item: If an investor wants an alternative to equities, consider quality bonds. If one wants an alternative to quality bonds, consider a slice of equities. Quality bonds and equities ARE the "alternatives" (complements) one from the other.
If one "must" have an alternative to both, real alternative ASSETS are few. Real estate is one. AU (in small amounts) is another. Cash is yet another. Fixed-index annuities, because of the way returns are structured (no losses) might be considered yet another -- though they are not liquid.
However, thing about real-estate & AU, is that low-cost vehicles (VNQ, GLD) exist which tend to preclude mutual fund marketers from trying to create new, high-cost OEFs for these which could be pitched as "alts". And you don't need to pay a fund company high fees to hold cash; ditto as regards gold bullion. Fixed-index annuities can only be sold via insurance companies, so the mutual fund industry cannot play in that sandbox.
"alternatives" are probably best looked for outside of the mutual fund marketing machines....
Like Chinfist, I like to spread my exposure to ALT funds with at least a 5% position in each investment, preferably 10%.
There may be select pockets for attractive FI exposure going forward in an increasing interest rate environment, but they will likely be limited to one of the Doubleline funds/CEFS, muni funds/CEFs, and PIMIX. And going forward, I definitely prefer select ALT funds over FI funds/CEFs such as: QMNIX, QLEIX, MCXIX, and even the low cost VMNFX ($50 min in Wellstrade retirement accounts).
Comments
One performance attribute which I expect from an alt fund is consistent, absolute returns. If they cannot consistently deliver positive results, why not just buy something like Vanguard Wellesley? When alt-managers --- such as Marketfield -- are given broad (dare I say, 'unconstrained') allocation authority, they better get it right.
Investors aren't paying alt-funds management fees for the manager to make wrong bets (we amateurs can do that just fine, and save ourselves the E/R).
edit/post-scriptum: I will give a nod to chinfist, that there are a handfull of merit-worthy alt funds. Notably, the Robeco/Boston Partners funds (most of those now closed to new investors); and some others. Unfortunately, as has been seen with MFLDX, alt funds look like a 'safe bet' for consistent returns -- until they fail and fail miserably.
Hindsight always 20-20. I have several examples when I should have sold didn't and went on to have bigger losses. I have stopped regretting selling ANY fund.
I own a lot of mutual funds, as I like to diminish manager risk. I understand some would disagree with that strategy, but that is what I do. I have owned a bunch of alternative funds over the years, some of them bad or useless, and have whittled them down to the few I have left, as 3 of them are doing what I want them to do (providing low relatively consistent returns with low volatility…these take the place of the bond portion of a balanced fund, as I was concerned with interest rate risk when I had purchased them. I wanted investments that would not be impacted by interest rates).
The 4 alternative investments I have are not the same. Only 3 of these have similar goals of absolute returns with low volatility, which are QVOPX, HFXIX and AZIIX, and these 3 use different strategies to get there. MCXIX, tries to generate returns any way it can while taking on more risk compared to the other funds through macro/commodity bets and alternative type strategies. The outsized gain of 53% YTD return shows this. When delving into the alternative type funds, because many of these funds have been unsuccessful, I find it even more important to spread my bets among these funds. So far I have liked all of these funds for the role they play in my portfolio.
BTW: Probably the most widely owned alternative investment is one's home. This one works for a number of reasons: (1) We tend not to check our home's value daily or weekly, (2) Mortgage costs/constraints prohibit frequent buying and selling, (3) Packing up and moving from home to home is just too much trouble.
Bottom line: Investors want "alternative" funds, but they don't want "alternative" returns. Just MHO.
http://news.morningstar.com/articlenet/article.aspx?id=724729
The returns were really UN-inspiring. To be sure there are a few decent alt funds, but it really looks like they are the exception to the rule. With the data in, it appears the fund industry has a lot more marketing people good at peddling alt-strategies than they have managers who can successfully and consistently execute alt-strategies. And most alt-funds charge higher fees than plain-vanilla stock/bond funds. -- I've mentioned before, and will re-iterate here, the real "alt-strategy" is the marketing strategy of the mutual fund companies -- attempting to divert a portion of the 'tsunami' of money which has and is moving from active management to low-cost indexation/ETFs.
I will posit one other item: If an investor wants an alternative to equities, consider quality bonds. If one wants an alternative to quality bonds, consider a slice of equities. Quality bonds and equities ARE the "alternatives" (complements) one from the other.
If one "must" have an alternative to both, real alternative ASSETS are few. Real estate is one. AU (in small amounts) is another. Cash is yet another. Fixed-index annuities, because of the way returns are structured (no losses) might be considered yet another -- though they are not liquid.
However, thing about real-estate & AU, is that low-cost vehicles (VNQ, GLD) exist which tend to preclude mutual fund marketers from trying to create new, high-cost OEFs for these which could be pitched as "alts". And you don't need to pay a fund company high fees to hold cash; ditto as regards gold bullion. Fixed-index annuities can only be sold via insurance companies, so the mutual fund industry cannot play in that sandbox.
"alternatives" are probably best looked for outside of the mutual fund marketing machines....
JMO
There may be select pockets for attractive FI exposure going forward in an increasing interest rate environment, but they will likely be limited to one of the Doubleline funds/CEFS, muni funds/CEFs, and PIMIX. And going forward, I definitely prefer select ALT funds over FI funds/CEFs such as: QMNIX, QLEIX, MCXIX, and even the low cost VMNFX ($50 min in Wellstrade retirement accounts).
Kevin