Morningstar Magazine - February/March 2018 - 29

Spotlight

Alternative Funds

Mapping Alternatives

34

A New Way to Approach
Alternative Funds
To fully understand
alpha-seeking alternatives,
bring beta on board.
FACTORS

Josh Charney

Active fund selection is a part beta, part
alpha decision.
For traditional asset classes, it is a fairly straightforward process. Investors seek an alpha/beta
blend. In selecting an active large-cap manager, for
example, investors desire a skilled manager
who outperforms by investing in large-cap stocks.

But alternative investments tend to blur the
alpha/beta line, and too often, investors incorrectly
base their fund analysis on a belief that
alternatives lean closer to the manager skill/alpha
side of the spectrum. This thinking can lead
to a few key problems when selecting alternatives
managers, because unlike the typical largecap fund, a pure-alpha alts fund has few
substitutes, and it is generally more expensive.
Conversely, beta is straightforward exposure
to an asset class. With beta's lower cost and ease
of comparability, it's no wonder that fund

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Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2018

Contents
Morningstar Magazine - February/March 2018 - Cover1
Morningstar Magazine - February/March 2018 - Cover2
Morningstar Magazine - February/March 2018 - 1
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Morningstar Magazine - February/March 2018 - Contents
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