System for tough times: advice for liquid Alternatives


    cash and cash Alternatives, a kind of hedge Fund-Lite Version, for investors an opportunity for diversification of your portfolio. The at least one hears increasingly of a variety of Fund providers. Interestingly, these defensive funds, which may consist of both stock and bonds should be, especially for such investors, a slowdown in the global economy to be expected. Because “Liquid Alts,” as this form of investment is called in short, develop in downstream markets, your Potential. But what investors should pay attention to when the much-vaunted, but rather unknown form of investment?

    Antonia man hamlet

    editor in the economy.

    F. A. Z.

    Three key figures, to the investors in investing in Liquid Alts should pay attention to, is called Magnus Spence, Director of alternative Investments, the UK Fund provider Jupiter: “The Sharpe Ratio, the correlation to the overall stock market and the level of risk.” The Sharpe Ratio measures the excess Return achieved by a Fund compared to the market, with the risk of the Fund. It serves, therefore, to provide orientation for investors, who must decide, for example, between two funds, if these differ, both in their rate of return as the Risk ratio, also volatility. The return of the first Fund at the same risk higher than that of the second, of course, for the former Fund.

    Between risk and dependencies

    it is Difficult, however, if the returns of the first Fund is higher than that of the second – the first Fund but also at a higher risk than the second. In the case of such a decision, the measure of the Sharpe Ratio helps. Basically, the Sharpe Ratio, the following applies: the higher, the better. Spence preferably a Sharpe Ratio of more than 0.7.

    The second important measure to investors, according to Spence should pay attention to, is the the correlation. The unique characteristic of Liquid Alternatives should exist in relative independence from the market. So you could, theoretically, also from rising prices to profit. The ratio of the correlation describes the dependence on the market. A correlation of plus one means, for example, that the Fund and the market are perfectly correlated with each other. They move in exactly the same direction – upwards as well as downwards. A correlation of minus one means that you have to develop absolutely the opposite, almost a mirror image. Consequently, the smaller the dependence of the Liquid-Alt funds from the stock market is, the better it is for the Investor, says Spence, and prefers a correlation of less than 0.4.

    cushion soothes many investors

    The last important measure, to which investors should pay attention, is the risk. The volatility tells us how much the value is fluctuated within a certain time period to its mean value. A higher volatility means that the price of an asset will fluctuate more around its mean value. This in turn means that the investment is riskier. The volatility of liquid funds, which follow the so-called Long-Short strategy, has fluctuated in the past three years, according to an analysis by the rating Agency Scope between 3 and 4 percent, which in comparison to conventional equity funds is quite low. The volatility of an index Fund is, for example, on the MSCI World index as much as 15 percent. This is just the low level of Risk, Liquid Alternatives, but it is your Problem, says Spence: “The level of Risk in Liquid Alternatives is average to low.” He recommends to take more courage. “5 to 7 percent of the volatility well,” says Spence. The bottom line is the risks are still much lower than that of equity funds. But the higher cost of such funds could compensate for.