In recent years, the investment advisory community appears to have grown tired of the traditional MPT (modern portfolio theory) approach, which attempts to maximize portfolio returns by allocating portfolios across multiple asset classes based on historical returns. However, after two devastating bear markets within a 10-year span, those responsible for helping individuals achieve their financial goals are seeking alternatives to the buy-and-hope method that was all the rage in the mid-80’s and 1990’s.
With the correlations of traditional asset classes close to 1.0 during the Credit Crisis (meaning that almost ALL asset classes went down - a lot - in 2008), sophisticated advisers may be looking for ways to further diversify their client portfolios. The goal is to finds ways to keep portfolios from suffering each time the stock market has a down cycle.
Thus, in an attempt to challenge the standard quo, AQR (Applied Quantitative Research) Capital Management LLC is tapping into the increasing interest in alternative investments with the July 18 launch of their latest mutual fund offering, the Multi-Strategy Alternative Fund (ASANX/ASAIX). The fund began with a $20 million investment and is designed similarly to existing AQR hedge fund strategies with a track record for weathering market storms. The investment intention is to attain long-term positive return by creating broadly diversified portfolios.
“As of today, there are only a relatively small number of mutual funds that pursue a similar multi-strategy approach,” said David Kabiller, founding principle and head of client strategies. “With AQR’s extensive experience in managing multi-strategy portfolios for institutional clients, we believe the AQR is perfectly poised to respond to a growing market need among fund investors.”
Others jumping on the bandwagon include Angel Oak Capital Advisors, who initiated a similar strategy June 28.
The new method targets low correlation to traditional asset classes and provides exposure and allocates assets to the following nine variations of alternative strategies: Convertible-arbitrage, fixed-income relative value, event-driven, dedicated short bias, equity market neutral, long-short equity, emerging markets, global macro and managed features. Each category will be distributed based on its potential risk.
“We will start with equal risk in each strategy and then we allow ourselves to tactically determine how much exposure we want to take between the set of nine,” Kabiller said. “…by targeting low correlation to traditional asset classes, the Fund has the added benefit of potentially increasing investors’ portfolio diversification.”
AQR, headquartered in Greenwich, Connecticut, broke into the mutual fund business shortly following the fall of the industry in the financial crisis of 2008.
Since its inception in January 2009, the AQR now nine Funds have grown to over $4.7 billion as of June 30, 2011.
Ultimately, AQR has high hopes for the newest addition to their fleet of mutual funds.
“With this fund, we’re getting back to the roots of what absolute return is supposed to do,” Kabiller said. “The launch of Multi-Strategy Alternative Fund reinforces AQR’s commitment to introducing innovative mutual funds that may help individual investors to build more efficient and diversified portfolios.”
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