Alternative Funds have Failed to Perform

It is not surprising that alternative asset funds failed to keep up with equity market returns during a strong bull run, says Morningstar analyst Randal Goldsmith

Randal Goldsmith 22 January, 2018 | 8:05AM

Standard Life's GARS fund is the most well known alternative assets fund

Alternative strategy funds delivered better performance in 2017 than the previous year – but returns are disappointing against a background of strong equity market returns. However, it is not surprising that they failed to keep up with equity market returns during a strong bull run. These funds are designed to have low correlation to equity markets and invested in to bring diversification to investors’ portfolios.

Looking at longer-term performance, negative interest rates during the past 12 months have been a headwind for alternative strategies that often make significant use of derivatives backed by collateral deposit. That deposit incurs a cost when interest rates are negative versus being a source of return when they are meaningfully positive.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Insight Broad Opportunities B1 EUR1.20 EUR0.34
JPM Global Macro Opportunities C Net Acc1.59 GBP0.19
SLI Global Abs Ret Strats D Acc EUR12.50 EUR0.12

About Author

Randal Goldsmith  is a Manager Research Analyst with Morningstar.

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