What’s in the box? Bad year reveals alt premia’s gaps

The average fund is down almost 5%, but gap between best and worst performers is 14%. 

In this recent article in Risk.net, Andrew Beer sheds some light on the hidden risks associated with individual funds and offers his perspective:

Excerpt:

For investors, the differences raise clear questions. “Imagine if you went to invest in an S&P index fund but the five different funds you could invest in were wildly different,” says Andrew Beer, managing partner at Dynamic Beta Investments.

“If no-one can agree on the appropriate way to build these things, then really you’re making your own calls as an allocator as to which portfolio managers do a better job of predicting which models will work better and how to put them together.”

The hidden risks in individual funds that are “only now coming to the surface” make investing in them “no different from investing in leveraged single-manager macro funds,” he argues.

A particular worry is the apparent sensitivity of some alt premia funds to falling equity markets because investors – rightly or wrongly – often choose risk premia to offset equities exposure elsewhere.

 

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November 1, 2018