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Three Flavors of Multialternative Funds

Make sure you understand which of three major strategies a fund is pursuing before investing in this fast-growing category.

Josh Charlson: Today I'm going to be breaking down the Morningstar multialternative category. Funds in this category either invest in or implement multiple alternative strategies within one portfolio. This has been a very fast-growing category; from fewer than 20 funds in 2008, we now have more than 150 funds in the category. So it's helpful to break it down and try to make some sense of the distinct strategies within it.

The largest grouping of funds within the multialternative category is what we call multistrategy funds. And these are funds where the managers are making distinct allocations to separate alternative strategies and those can be either through hedge funds that they invest in through separate accounts; through mutual funds in a traditional fund-of-funds format; or single-strategy funds where it's a single manager operating in different sleeves within the fund.

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