Submitted by: Submitted by daveandlily1
Views: 285
Words: 684
Pages: 3
Category: Business and Industry
Date Submitted: 03/30/2011 03:26 PM
In many ways, the iShares Diversified Alternatives Trust (ALT) is unlike any of the other iShares exchange traded funds.
By my count, there are 220 iShares ETFs covering everything from the MSCI Ireland Capped Investable Market Fund (EIRL), with just 23 holdings, to the Barclays Intermediate Credit Bond fund (CIU), with 1,364 corporate bonds.
In the midst of iShares' tremendous offerings is ALT - the only ETF that they offer that is actively managed - invests in multiple asset classes (stocks, bonds, currencies), doesn’t track a specific benchmark and provides direct exposure to ‘alternative’ strategies.
Despite the rapid growth in liquid alternatives, ALT currently has $127 million in assets and is a small fish in the $450 billion iShares pond.
Still, for investors seeking alternative strategies with potentially attractive risk/reward characteristics, ALT may be a good solution.
The fund prospectus states that ALT will target an annualized volatility between 6-8% and iShares expects a Sharpe Ratio of between 0.5 and 0.75 for the portfolio. With this data, we can infer expected returns between 3-6% over the risk-free rate (currently 0.10%).
Because the fund is essentially market neutral with short positions equally offsetting all of the long positions, the fund should remain relatively lowly correlated to stock and bonds returns.
Thus far, using whole month price data (except March) beginning October 31st, 2009 and March 25th, 2011, the realized correlation between ALT and the S&P 500 is 0.29 and 0.08 against the Barclays Aggregate Bond Index.
To generate these results, ALT uses three basic strategies in an effort to capture various risk premia. I am not aware of any other retail funds that explicitly try to capture various risk premia without taking systematic risks, although the concept is nicely illustrated in this MSCI Barra paper.
The MSCI Barra paper uses the small cap premium as an example, and essentially suggests going long small...