Elsewhere among liquid-alts mutual funds, the bear-market strategy collectively zoomed 30% in the first quarter. This strategy has a five-year correlation of negative 0.97 to equities, so it’s no surprise it throughly thumped the S&P 500 during the last quarter. On the flip side, it has significantly underperformed the S&P 500 over the five-year period as the index climbed to an all-time high.

Meanwhile, nontraditional bonds lost 7.6% in the first quarter, a huge underperformance to the Bloomberg Barclays US Aggregate Bond Index, which gained 3.2%.

As referenced above, the remaining categories provided mixed-bag returns, some of which should be viewed from a risk-adjusted perspective. As noted in the Cerulli report, liquid-alternative funds are often judged based on whether they offer downside protection, improve risk-adjusted returns and provide decreased correlation to equity or fixed-income markets. Like with any product category, not all funds are created equal.

“In-category performance dispersion of the funds is quite significant,” Cerulli said, “so when some funds struggle, others in the same category will distinguish themselves.”

The trick is finding those better-performing funds. 

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