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Breaking Down the Multialternative Category

We wrap our arms around this fast-growing category.

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The U.S. multialternative Morningstar Category has been the fastest-growing alternative category during the past few years, and arguably the site of many of the most interesting innovations in the industry. In 2015, the multialternative category saw some of the strongest net flows of any category, alternative or otherwise, bringing in $17.6 billion in net new investor dollars. From a mere 25 distinct funds and $6.3 billion in assets in 2007, the category has expanded to 157 funds and more than $55 billion as of year-end 2015. The category may be on a tear, but its constituents are heterogeneous, both in terms of investment strategy and quality. In fact, only nine funds that receive Morningstar Analyst Ratings are Medalists, a signal that Morningstar analysts think the fund will outperform its peers or benchmark during a full market cycle. In general, we have doubts that many of these funds can rise above their significant fee hurdles.

Morningstar defines a multialternative fund as one that encompasses multiple underlying alternative strategies. At least 50% of the portfolio should consist of those alternative strategies, and in general the fund should exhibit other characteristics investors expect from alternatives funds, such as fairly consistent gross short exposure of 20% or more and/or low beta and less correlation to traditional asset classes.

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

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