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Nominees for 2015 Alternatives Fund Manager of the Year

These three candidates delivered what investors seek from an alternative-strategy fund.

Mentioned: , , , ,

As did managers in other asset classes, alternative-fund managers faced a host of challenges in 2015: muted stock and bond market returns, plummeting commodities, tricky currency markets, and greatly increased volatility. Of course, many alternative funds are designed to take advantage of such circumstances: They can go short declining markets, for instance, or they have the latitude to move across global asset classes and markets to find the best opportunities. That doesn't mean everyone succeeded, however. In the difficult third quarter, managed-futures funds displayed their historical diversifying traits, with the category up 0.68% for the quarter while the MSCI World Index declined nearly 9%. But overall, the results for alternative managers during the correction were somewhat equivocal.

It's the managers who stood out, both during the downturn and over the course of the year, that drew our attention when nominating candidates for Morningstar Alternatives Fund Manager of the Year. We looked, in the first place, for managers who produced positive absolute returns as well as favorable relative returns compared with their category peers. That alone filtered out many managers. But beyond returns, we look for managers whose strategies embody the types of qualities investors typically seek in an alternative fund, such as diversification away from traditional stock and bond exposures and improved drawdown behavior. Did the manager produce alpha from shorting, adjust market exposure in a timely and beneficial manner, and/or produce positive returns when other markets were tanking? Moreover, has the manager proved an ability to do this over the long term? (Though long term, when it comes to alternative funds, may only mean five or six years.)

Josh Charlson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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