We hope you are enjoying your Independence Day weekend. In the event that you have some downtime between the fireworks, BBQs and other weekend festivities, we have put together some suggested reading for you.
In the first two articles below, the authors emphasize the ongoing need for education around liquid alternatives. These investments are no doubt more complex than nearly any other category of mutual funds and exchange traded funds on the market, and education is required at multiple levels – well beyond the individual investor level that we discussed last week.
Financial advisors need to know how these strategies work, how they fit into a portfolio and what types of risks are embedded in the funds. They need to be comfortable in their understanding of these funds long before they begin implementing them in client portfolios. Mutual fund boards need to be comfortable with the underlying investment structures that managers are using, and be comfortable that they are implementing the strategies in compliance with appropriate regulations. As alternative strategies make their way into defined contribution plans, fiduciaries to those plans need to understand the implications of making these funds available to plan members. And the list goes on. Extensive education will be critical to the ongoing success of liquid alternatives.
If you are a hedge fund manager looking to enter the liquid alts space, take a look at articles 4 and 5 below. Some good advice for you. Risk parity gets called into question in article 6, as does alternative beta in #7. However, Morningstar makes a good attempt to categorize all the various alternative beta strategies in #8.
Take a look at the last two articles if you want to know more about the non-traditional fixed income strategies that have been the rage over the several years as interest rates have been artificially constrained at historically low levels. I’m just wondering when this idea that “rates are going to rise” will materialize.
Enjoy the weekend.
1. Navigating Liquid Alternative Mutual Funds (MarketsMedia)
Guest contributor Jerry Szilagyi, CEO of Catalyst Funds, discusses the different structures that fund managers use in alternative mutual funds to gain access to underlying investments, and reviews some key items to look for when evaluating this more complex range of funds.
2. Focus on Liquid Alternatives (HFMWeek)
This article by Mark Aldoroty, Managing Director for Pershing, discusses the importance of education as the market for liquid alternatives continues to grow.
3. A Liquid Alts ETF Idea for the Second Half (ETF Trends)
A look at the newly launched alternative ETF, the PowerShares Multi-Strategy Alternative Portfolio (ticker: LALT).
Considerations for Hedge Fund Managers
4. Liquid Alternative Funds: Considerations for Hedge Fund Managers (McGladrey)
A detailed review of the formation, tax and investment considerations for forming an alternative mutual fund.
5. As Hedge Funds Go Retail, Communication is Key (FinAlternatives)
Some thoughts on investor communications for hedge fund managers looking to launch alternative mutual funds.
Risk Parity & Smart Beta
6. Risk Parity Loses to Risk Factors, Study Finds (CIO)
Is the tide shifting away from risk parity and toward alternative beta / risk factor investing?
7. A Skeptical Look at Risk-Factor Investing Research (CIO)
Is flawed research the basis for growth in risk factor and alternative beta strategies?
8. A Sensible Approach to ‘Smart Beta’ (Morningstar)
Morningstar takes a crack at changing the name of this category of investments, and also suggests a way of grouping the different types of strategies within this broad category.
Alternative Fixed Income
9. 5 Things Your Fund Company Won’t Tell You About Non-Traditional-Bond Funds (Morningstar)
Maybe your fund company hasn’t told you everything you should know about their non-traditional fixed income strategy.
10. Portfolio: The risks of floating rate funds (Fox Business)
The exploding market for floating rate bond funds has created some new risks that investors should consider.