Alternative strategies underperform over past two years
In a particularly volatile market, only five alternative funds managed to produce a positive return in the past two years, according to Morningstar's latest sector wrap-up.
Over the eight quarters to 30 June 2012, Aspect Diversified Futures, BlackRock Asset Allocation Alpha, Winton Global Alpha, Acadian Qaunt Yield and Fauchier Partners Absolute Return were the only alternative strategies that beat the standard international equities benchmark, the MSCI World Hedged Index, Morningstar stated.
According to Morningstar, there is no clear definition of what constitutes an 'alternative' investment strategy, as they "are by their nature heterogenous and have different approaches to investing".
Investors pay a premium for the complexity of the underlying process, the skillsets of alternatives portfolio managers, and for gaining exposure to sophisticated strategies usually beyond the reach of retail investors, Morningstar stated.
Therefore it is essential that investors are truly getting a different exposure than one they might get from a cheaper, more traditional managed fund or exchanged-traded fund, according to the report.
"We do not believe the majority of alternative strategies available in Australia are suitable for lower-risk investor portfolios given the embedded risks and complexity," Morningstar said.
An alternative allocation of up to 10 per cent could provide the additional diversification required in a 'balanced' portfolio and should come entirely from the 'growth' split.
Of the 14 strategies assessed, none were awarded Morningstar's 'Gold' or 'Silver' rating while five were designated 'Bronze'.
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