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Liquid Alts. How much of your portfolio should be in them?

This is a link less post. One advice I gleaned from reading "Winning With Liquid Alternatives" was that one should allocate anywhere from 10-30% of their portfolio towards these kinds of investments. This may not be hard to do as not only new funds are coming out all the time but older funds are changing their prospectus to allow some investing in this arena.

So I pose the question to the MFO universe. How much of your portfolio do you plan or, How much of a portfolio should you plan to invest in liquid alternative offerings?

Comments

  • 9-10% total...3% in each of 3 liquid alt funds. I may go higher, but not until I know more about them and they have a longer track record.
  • Have 5% in one; may go to 10 with a second one, but haven't narrowed the list down sufficiently yet to pick el segundo.
  • edited December 2014
    84 new funds in 2014

    No alt's on this house's shopping list.

    My meddling may cause enough portfolio damage; let alone my meddling within someone else's meddling, too; and we both get it wrong. And, yes; there will be a few winners here and there, but how to choose today, who would be the winner(s) going forward?

    Catch
  • Once upon a time I was in ARSLX it did not work out . At the time some folks on this site suggested Marketfield (MFPDX and fortunately I rejected. These things are particularly tax inefficient in taxable accounts and the fees are so high its odds against that it will work out.You also to a much greater extent run into one of the arguments indexers use which is that even if there is a fund that will do well you might not be able to pick the right fund. For cost reasons I suggest buying TLT which is long term treasuries. I may think this fund won't do very well over the next year but it does do well when the roof falls in (see 2008) and provides diversification
  • I feel ignorant. What is a liquid alternative and why do you need them?
  • This site is very good regarding liquid alts and what they are how they work. Lots of information.

    http://dailyalts.com
  • @JohnChisum

    Thanks for the link to dailyalts.com. Looks interesting, and I have bookmarked this site.

    Right here, right now, with domestic equities fully valued, developed foreign equities in a definite funk, and interest rates destined to increase over the next 12 months, I would have no problem owning a 10-20% position in Alts -- as long as they continue to perform. At this time, we own a 10% position in PQTIX (investor ER 1.15%), and I am considering the purchase of a 10% position in QLEIX (investor ER 1.39%).

    @Junkster

    Conditions like 2008 will inevitably occur in the future, and just like in 2008, common investors like us -- who likely overestimate our abilities -- and the "professionals" will be caught by surprise.

    I continue to think that investors can obtain adequate downside protection with a wise mix of relatively low-cost equity, balanced and bond OEFs/ETFs, such as: MOAT, RPV, SCHD, VDIGX, VASVX, VSTCX, VMNVX, SPLV, EFAV, TOLSX, GLFOX, DODGX, DODFX, DODWX, DODBX, PRWCX, VWENX, HBLIX, WHGIX, VWIAX, PIMIX, PIGIX, MWTIX, DBLFX, DBLTX, DBLEX and RSIVX . But I remain open to relatively low-cost alternative funds, such as PQTIX, QLEIX, AQRIX, LMAPX, CRUMX, and even BG's JUCIX. As for the Alts, I am willing to be very, very patient, and track and track, and resist the temptation to be an early investor, but if the Alt fund continues to impress, I am willing to pull the trigger and buy.

    Kevin
  • edited December 2014
    Kevin, we are on the same page with funds like PQTIX and QLEIX. Just don't sit idly by if they turn into a Dusty Springfield fund like a MFLDX or an ARIVX. As for being caught by surprise, that is what trailing stops and having an exit strategy are for. If every "common" investor *obsessed* as much about their exits and when to sell as they do on their entries and when and what to buy.......................... the world of millionaire investors would increase by leaps and bounds.
  • edited December 2014

    0%

    "Wall Street's New Happy Hour" (from last July)
    http://money.cnn.com/2014/07/14/investing/liquid-alternatives/

    Is cash a liquid alternative? In that case, I'd guess 5-35% depending on age would be appropriate.
  • @Junkster What is a "Dusty Springfield fund", how do I identify such a fund and what should I do when a fund becomes one?
  • @kevindow Thanks for compiling and sharing an impressive list of funds and ETFs. I probably wouldn't venture into what I would call "non-core funds" such as Global Infrastructure funds (as identified by Lipper), but you present many interesting options overall.
  • The user and all related content has been deleted.
  • edited December 2014
    Maurice, One of Dusty's (RIP) biggest hits was "Wishin and Hopin" That what investors do when they find themselves in a massively underperforming and/or losing fund. Then they use all sorts of rationalizations why they should hang tight.

  • @Junkster
    That was the song that came to my mind, too.
    Catch
  • Warren Buffett Quote " I don't invest in ANTHING I don't understand"
    But Joe Schmoo does.....go figure....
  • I have been watching on the sideline on this " alternatives" while holding with a healthy % of cash and short term bond funds. I welcome another 10% drop as of this Friday - great entry points.
  • "Holding a Healthy % of cash and short term bonds" is a very expensive mode of operation, good luck shopping
  • @Tampabay,
    "Holding a Healthy % of cash and short term bonds" is a very expensive mode of operation, good luck shopping
    It boils down to personal approach of risk management. The price tag for these alternates are too high for my preference while they maybe perfectly okay with others. Having cash enables me to add/buy when opportunities arise as in several times this year. It served us well during 2008-2009, and will likely to continue.
  • 2008 cash was great....6 years since..not so great....but I ALWAYS believe:
    "to each his own"
  • Not all alt funds are complicated nor hard to understand. Perhaps this is the reason some write off the whole idea. Take an Unconstrained bond fund for example. The typical fund mandate is to invest in any type of bond with no restrictions on geography or rating. This fits the needs and wants of investors who would otherwise purchase two or three or more funds to accomplish the same objective.

    It is already happening in the target date and asset allocation funds that a small portion might be of an alternative nature.

    In the end it is up to the investor to make the choice. It should also spur that investor to educate themselves on types of investments including alts.
  • edited December 2014
    Sven said:

    I have been watching on the sideline on this " alternatives" while holding with a healthy % of cash and short term bond funds. I welcome another 10% drop as of this Friday - great entry points.

    I'm not sure what a "great entry point" is or would be. Admittedly, I have only a cursory knowledge of markets and investing. I do know that the longer the time horizon, the higher (in valuation terms) that entry point can be. So, were I a youngster of 35, I'd throw everything into a good index fund (perhaps the Wilshire 5000) and forget about it.

    David has pointed out on more than one occassion in his monthly commentaries that equity markets in general don't appear cheap. One quick take-away from his March 2014 piece: "Hence inflows into an overpriced market." (You barely need read between the lines here to fathom the sentiment.) http://www.mutualfundobserver.com/2014/03/march-1-2014/.
    For context, The Dow closed at 16,322 on February 28, 2014.

    I try to put things in the widest context possible. I look at the DJI during its late 1990s peak years and find it running in the 9,000-10,000 area (with a close on December 31, 1999 around 11,500). Now, nearly 15 years later, it hasn't yet doubled. So ... by that gage, I don't think we're in an obscenely overpriced equity market here in the U.S. - but not a cheap one either.

    There's great danger in numbers. Back in the late 1990s (when TV gave birth to CNBC) with the Dow at 9,000-10,000, a 1,000 point gain would have amounted to more than a 10% increase in value. Recently, with the Dow around 18,000, a 1,000 point gain still garners the same media "hoopla" - but is, in fact, only about a 5% change in value. So, be careful looking at those "ups and downs" and trying to assess changes in valuations.

    There's a conventional school of thought which follows something called: "The Rule of 8." Longtime financial commentator Bruce Williams used to refer to it on his radio program. In a nutshell - one's investments should double in nominal value every eight years. One wonders, however, whether in an era of low inflation and 2% yields on Treasuries, that's still a realistic expectation.

    If there is an "undervalued" area, it would apoear to be in the commodity related sectors. Returns for Price's New Era (PRNEX), a fund with a solid long term track record, are now in the single-digits going back 10 years. There's plenty of room to run there ... but only if inflation picks up. One question I've been pondering without much success is: What would a fund like PRNEX do in the event of rising commodities prices and a falling U.S. equity market? Watching recent market movements, I suspect a fund like that would hold its own or possibly gain, while the major equity indexes were tumbling. But ...I'm decidedly not sure.

    Regards


  • Check out the alternative funds launched in 2014 here, link: http://dailyalts.com/new-liquid-alternative-fund-launches-2014/
  • Good link @mzckf. There are many more not listed that the bigger fund families have opened up recently. I was surprised those were not listed.
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