FAs Gain a Tool For Comparing Your Liquid Alts
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Wednesday, November 01, 2017

FAs Gain a Tool For Comparing Your Liquid Alts

Fundsters with liquid alternatives, beware: FAs just gained access to a tool to help them classify your wares, and the general public will gain it soon, too.

At the end of last month Morningstar made its Morningstar Style Box for Alternatives available to advisors through Morningstar Direct, and the alts style box will be available on the M* website early next year, senior analyst Jason Kephart confirms. The box helps FAs and investors better understand what different liquid alts products offer.

M*'s move has been a long time coming. The investment research giant launched the alts style box a year ago with a research paper by Kephart and Josh Charlson, director of manager selection.

The style box breaks down into nine mini boxes by measuring liquid alts funds on two different scales: relative volatility and correlation (both compared to global equities). Investors who turn to alts are typically for things that smooth the ride by either being uncorrelated with the rest of their portfolios or by being less volatile, or both, and the alts style box points them to funds with those characteristics.

Kephart takes FAs and investors through the alts style box, looking specifically at the four corners of the box: 1) funds with high correlation to stocks but low relative volatility (upper left); 2) funds with high correlation and high volatility (upper right); 3) funds with negative correlation but high volatility; and 4) funds with negative correlation and low volatility.

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