After FINRA recently warned investors about the riskiness of alternative mutual funds,
U.S. News and World Report asks, do the benefits outweigh the risks?
Silverblatt notes that alternative mutual funds employ a wide range of strategies and they also have a host of different objectives, which makes it difficult to answer that question broadly.
Absolute return funds try to get a positive fund each year, regardless of how the stock market is performing. The main risk though is that they can lag behind other funds because of said hedging.
Funds that try to beat the market, of course, will have the riskier and more complex strategies.
Todd Rosenbluth, the director of mutual fund and ETF research at S&P Capital IQ suggests alternative funds pass three tests, size, fees and track record:
He recommends
FPA New Income for an absolute return fund:
"FPA New Income is an absolute return fund. However, unlike many of its brethren, it invests in fixed-income securities rather than taking long and short positions in stocks. The fund has a lengthy track record – it has been around since 1969 – and it has proven quite good at obtaining its objective of avoiding negative returns. Notably, since 1984, the fund has earned a positive return each year," he said. 
Edited by:
Casey Quinlan
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