Well-performing alternative investment funds are successfully delivering on their promise to improve portfolio diversification and protect investors from falls in equity markets, according to research house van Eyk.
Having just identified five A-rated managers in the alternatives sector, van Eyk said that the asset class was increasingly being recognised as a means by which investors could not only generate additional sources of return uncorrelated with equities and bonds, but also enhance the long-term returns of a balanced portfolio.
Matthew Olsen, head of manager research and deputy chief investment officer for van Eyk, said that those funds in the alternatives sector rated highly by van Eyk had received their rating due, in large part, to their ability to protect investors from equity market falls.
"The alternative funds that van Eyk has recommended have been performing true to label," he said.
For example, Olsen pointed to the Aspect Diversified Futures Fund, which had outperformed the ASX200 index 70 to 80 per cent of the time on the basis of five-year rolling returns.
"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," he said.
"I have seen some analyses of these types of funds which try to assess them over time periods as short as 12 months."
"(However,) this does a great disservice to investors who have the right approach and try to invest for the long term."
Yet Olsen warned that 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," Olsen said.