Short positions typically account for 60% to 85% of fund active exposure, although some funds may be 100% short after excluding regulatory collateral. In the event of a broad market rally, these funds will lose money on their short positions but will experience a gain on their long positions. Some managers invest the proceeds from their short positions in low-risk assets, while others dedicate a portion to long stock positions in order to hedge against broad market rallies. Most of the portfolio is dedicated to short stock positions in an attempt to take advantage of anticipated market or stock declines producing a net exposure to equities of less than or equal to negative 20%. According to Morningstar Inc.’s methodology document, MethodologyPapers/MorningstarCategory_Classifications.pdf: These funds dedicate a majority of the fund’s assets to equities. Backfill bias happens when a fund chooses to report to a data base sometime after inception, and the data provider allows the past history of the fund to be incorporated into the indices.Ī period in which major stock market indices fall.Ī Morningstar alternative category.
Asset classes are generally governed by the same rules and regulations.Īn effect that can make an index or category average performance better than the actual experience of a hedge fund or mutual fund investor. Alternative investment strategies typically have the ability to use leverage, shorting, and active risk management in pursuit of returns that are lowly correlated with traditional asset types.Īn investment strategy that seeks to balance risk and reward by dividing investments among different kinds of asset classes, such as stocks, bonds and cash.Ī group of securities that share similar characteristics and behave similarly in the marketplace. A negative alpha figure indicates a portfolio has underperformed, given the expectations established by the fund’s beta.īroadly defined, an investment that is not one of the three traditional asset types (stocks, bonds and cash). A positive alpha figure indicates the portfolio has performed better than its beta would predict. Some advisors see alpha as a measurement of the value added or subtracted by a fund’s manager. It can be viewed as a risk-adjusted measure of return. A higher alpha is better, but a high alpha is only reliable in the presence of a high R-squared value. Measures the difference between a portfolio’s actual returns and its expected returns given its risk level as measured by its beta. Performance generated using the risk-free rate as a starting point rather than the returns of an index like the S&P 500.Īn investment strategy which takes long and short positions in various global currencies, as opposed to strategies which take primarily long foreign currency and short US dollar/home currency position.Īn investment strategy that does not seek to closely track a specific benchmark index.
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