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Good post. Many of these funds are certainly not worth it due to high fees, mediocre performance or in the case of some of the "hedge fund" ETF's, simply holding a lot of cash earning 0 in order to deliver lower volatility. What makes area possibly worth exploring going forward is the potential of lower beta and a different return stream from a straight equity investment especially with bond yields being low. ALPHX, mentioned in the article has been a bust with its lousy 2008 leaving it with a 5 yr negative return. A winner which has been closed for many years is TFSMX. David has profiled some funds, one off to a decent start mentioned in the article (MASFX), that could end up being good holds due to lower correlation and beta with the S&P 500. The trick is in deciding which ones and when to cut and get out if returns are unacceptable.
Life is too short and before you know it you wake up and you are over 60 pushing 70. My point is, I sure would have hated being in any of these funds the past five years much less the roaring 80s and 90s. When you are young you can't live in constant fear of a market meltdown and you have to exploit bull markets for as long as you can with as much as you can. These alternative funds sure aren't my idea of exploiting the long term trend of the stock market. And if you must live in fear, there have been a heck of a lot better opportunites in select bond funds.
Good alternative-strategies funds can, indeed, be taxing on an investor's patience. The fact is that many of these look just plain boring...until a period of heavy selling pressure hits. We have struggled with how to incorporate managed futures in client accounts for years and have not found any fund that has done a very good job. We have selected MFLDX, LASYX, EIGMX for the true alternative area, and believe they cover the gamut of stocks, bonds, and currencies reasonably well and have some of the best minds in each sector. We spent a lot of time in due diligence with several AQR funds, but decided that for us at least, their strategies are too complicated to explain to our clients (and I venture few investors who own them really understand how the funds' complicated strategies work). We did due diligence on WhiteBox Long-Short, and concluded that for a fund that considers itself an absolute return strategy, its historical returns are anything but absolute return-like. The jury is still out on that for us. MASFX may be worth a look, but our personal aversion to one of the managers means we will not use it. As for reducing risk in the equity arena, MFLDX has captured more than 70% of the upside and only 50% of the downside. That's startlingly good, and really is what most investors would hope for in a long-short strategy.
Reply to @BobC: Excellent comment. I have a small allocation on MFLDX before Mainstay bought Markfield. So far nothing change, but I am warily of the ER creeps up.
I look at MASFX but decided it wasn't for us for various reasons. You are right that AQR complex strategies are really hard to understand...
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I look at MASFX but decided it wasn't for us for various reasons. You are right that AQR complex strategies are really hard to understand...