While investor demand for exposure to a diverse array of alternative strategies and managers is ever increasing, and new funds are being launched to capitalize on this demand, some firms are liquidating their multialternative funds. Case in point: William Blair and Tocqueville each shuttered multialternative funds in mid-May. The funds in question were:
- William Blair Directional Multialternative Fund (MUTF:WDMIX)
- Tocqueville Alternative Strategies Fund (MUTF:TALSX)
The William Blair fund had $158 million in assets under management (“AUM”) at the end of 2015. The fund originally launched in November 2014, and through March 2016, it had one-year returns of -7.68%, ranking in the bottom 26% of funds in its category. With the closure of this fund, William Blair is cleary placing its multialternative bet on its older and larger William Blair Macro Allocation Fund (MUTF:WMCIX). The $1.8 billion Macro Allocation Fund, which was launched in 2011 and currently holds a 4-star rating from Morningstar, is managed by Brian Singer and Thomas Clarke.
The Tocqueville fund had $44 million in AUM at the end of 2015, and that total had dropped to just over $37 million by March 31. For the year ending that date, the fund returned -10.63%, ranking in the bottom 9% of its category. It originally launched in June 2012 and had three-year annualized returns of -1.00% through March 31, ranking in the bottom 21% of its peers.
What characteristics led to the downfall of the two funds? For starters, they both had high betas relative to the Morningstar Moderate Target Risk Index: 0.82 for the William Blair fund and 0.93 for the Tocqueville fund, compared to a category average of 0.46 for the one-year period ending March 31, 2016. The William Blair fund had one-year alpha of -7.09%, and the Tocqueville fund -10.09%, which obviously added to their woes.
Both funds were more volatile than average, too. For the year ending March 31, WDMIX had a one-year standard deviation of 8.55%, and TALSX had a one-year standard deviation of 10.17%, compared to the category average of 6.04%.
TALSX’s three-year beta, alpha, and standard deviation for the period ending March 31, 2016 were 0.74, -4.21%, and 8.18%, respectively; compared to category averages of 0.46, -1.20%, and 5.26%.
Obviously, prospective investors are looking for multialternative funds that have low betas, generate positive alpha, and have acceptable levels of volatility. These funds failed on all three counts.
Jason Seagraves contributed to this article.