Alternatives, Part II


In my previous article on Alternative Investing I provided an explanation about hedge fund investing and mentioned one hedge fund I am invested in.  As a reminder, hedge funds are for accredited investors only.  For everyday investors there are Liquid Alternative funds  .    I happen to be invested in several and I will highlight them and provide links to the funds.  I invest in all of these thru Charles Schwab’s fund marketplace.  In my taxable account I invest in the institutional share classes of the funds (lower fees but higher minimums) and in my IRA I invest in the investor class of funds.  In a future article I’ll discuss investments I’m making outside of my brokerage accounts (Real Estate and Bullion).

The following are funds I own in my taxable account, here’s a a glimpse of my mutual fund holdings in a screen shot:

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For the sake of brevity I’ll provide links to each fund (versus writing an lengthy description of each.  Fact sheets are available for each fund thru the links provided:

BIVIX (Balter Invenomic Fund)

Cedar Creek Unconstrained Credit Fund

FSMMX (FS Multi-Strategy Alternatives Fund)

SEMMX (Semper MBS Total Return Fund)

In my IRA Account I hold the following funds, not all are liquid alts:

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GTSOX (Glenmade Secured Options Portfolio)

GIOPX (Guggenheim Macro Opportunities Fund)

Otter Creek Long/Short Fund

CIVVX (Causeway International Value Fund)

I have my reasons behind each investment and I’ve performed exhausting research to find the funds that best fit this niche for me.  Some of my passive index-investor readers will cringe when they notice the fees of these funds.  In all cases, Liquid Alternatives are higher-fee funds.  They’re actively managed by bona fide hedge fund managers.  In lieu of charging incentive fees (which they’re not allowed to do in mutual funds), they charge higher management fees.  I already knew this going in and I am basically paying a premium for the specific fund manager as well as the portfolio strategy.  These type of investments are not for everyone.  My fund portfolios are constructed very carefully; low beta (which dampens volatility), a stream of income and carefully diversified across several strategies which means some holdings zig and others zag.  My portfolios are negatively correlated to the ups-&-downs of the equity markets.  Notice my cash levels in the pie chart; this is the cash proceeds from equities I’ve sold (& pared back from) since late last year. I still hold some stocks, REIT’s, preferred’s and a ladder of CD’s, the screen shots I provided are of my liquid alternative mutual fund holdings, I put my money where my mouth is.  The cash is ready to deploy, to exploit bargains from the forthcoming sell-off.  I don’t believe the market has bottomed yet and I plan to slowly redeploy my cash holdings as the markets sell-off….that’s the subject of a future article…..  

2008 taught a valuable lesson; Cash is King and Liquidity Rules.  In the deep throes of the financial crisis, the institutions lacking liquidity failed (Bear Sterns, Lehman, the original Merrill Lynch, Countrywide, Wachovia and Washington Mutual, not to mention countless hedge funds from too much leverage).  The institutions with oodles-&-gobs of liquidity (JP Morgan, Berkshire Hathaway) not only survived, they either swallowed the failed institutions (Chase) or they lent money to them to prevent further collapses.  Today we are undergoing another sea change.  The $VIX has doubled from the all time lows of January.  Intraday volatility is rampant.  Markets gapping up on the day and sold off.  Now My Dear Readers,  is the time to consider holding higher cash levels AND consider investing in liquid alternatives….



4 thoughts on “Alternatives, Part II

  1. Thank you for posting this! Found you through the ESI Money blog. I have never heard of the Liquid Alternatives before. The high fees may turn some off but I agree there is a price to pay for having a professional actively manage a fund. Look forward to reading more of your posts!

    1. Thank you Brad. I’m not sure what brokerage firm you use but you should be able to use the firm’s site tools to research mutual funds available thru their platform. If you look up “alternative” or “long/short” I’m sure you’ll find some funds worthy of your investment. A good “starter” fund is the Littman Gregory Alternative Strategies Fund (symbol: MASNX). Take a look. You can obtain a fact sheet from Littman’s site.

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