van Eyk has just released an additional 10 fund ratings in the Alternatives sector, identifying a further five A-rated managers covering the absolute return, commodities and global macro sectors. 

The Alternatives asset class is being increasingly recognised as a means by which investors can generate additional sources of return uncorrelated with equities and bonds and enhance the long term returns of a balanced portfolio. Globally, pension funds increased their allocation to Alternatives from 5 per cent to 20 per cent between 2005 and 2011.

van Eyk was one of the first in Australia to identify the importance of this asset class and has recommended a 20 per cent allocation to Alternatives in its model balanced portfolio since 2008. 

van Eyk Head of Manager Research and Deputy CIO Matthew Olsen said funds in this sector rated highly by van Eyk received their rating partly due to their ability to protect investors from equity market falls and produce absolute returns. 

“The Alternative funds that van Eyk has recommended have been performing true to label,” Mr Olsen said. 

An example is the Aspect Diversified Futures Fund. This fund is a CTA or Managed Futures strategy which seeks to exploit returns in alternative asset classes (chiefly hard and soft commodities but also bonds and currencies) when equity markets are volatile. 

On the basis of five-year rolling returns, this fund has outperformed the ASX200 index 70 to 80 per cent of the time. 

Furthermore, during the period between the top of the Australian equity market in 2007 and the bottom of the bear market in March 2009, this strategy outperformed equities by 70 per cent. 

“This fund will cushion the blow of falling equities and reduce volatility if used in conjunction with equities or as part of a balanced fund,” Mr Olsen said. 

Mr Olsen said it was important when examining these funds to look at them over the long term. “I have seen some analyses of these types of funds which try to assess them over time periods as short as 12 months,” he said.  “This does a great disservice to investors who have the right approach and try to invest for the long term.” 

Also, it was vital to have the expertise to sift the better funds from the rest, perhaps more so than traditional asset classes because of the relative complexity of some investment strategies. “More managers are seeking to enter this space but van Eyk recommends only the cream of the crop,” Mr Olsen said.

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