DAILYALTS: Understanding Liquid Alternatives: Ask The Right Questions

Ted

FYI: Financial advisors and other professional investors often have a lot of questions about liquid alternatives, and for good reason. The investment strategies used in alternative mutual funds and ETFs are not straight forward by any means. Many use some form of leverage. Most utilize the ability to short securities, while others use a variety of derivative instruments to efficiently gain exposure to certain assets classes or securities.
Regards,
Ted
http://dailyalts.com/understanding-liquid-alternatives-ask-the-right-questions/

BobC

Before investing in any liquid alts, there are three, maybe four questions to answer for each potential position. 1) What is an acceptable return? 2) What is an acceptable downside? 3) Is the investment truly uncorrelated or at least very-low correlated? And perhaps 4) How many funds do I need to be diversified? There are, of course, many due diligence steps to take, but the above 3 (or 4) will at least start the evaluation process.

MikeM

I can never get by my first question, 1) do these liquid-alt funds have better return over time than a moderate or even a conservative balanced fund? The answer is pretty much no.

The problem I see with correlation to the market for these funds is that they seem to be uncorrelated during some market drops but not for others. Market drops happen for different reasons and the strategies specific funds hold do not work in all cases. They may be uncorrelated one time and the next time the market drops they add no protection at all. Just my observation.

Basically, over time, I still say a balanced fund is a better option.