This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Alternative Funds Enter the Mainstream

Now some are seizing on alternative funds as a way to deliver the protection that clients seek. "The old answers from advisers don't cut it anymore," said Cortez. "Advisers need to be able to explain what they are going to do if the market gets into trouble."

The alternative funds do not represent panaceas. Many of the funds charge stiff expense ratios of more than 2.0%, and the funds tend to lag in bull markets.

Consider market-neutral funds. When stocks sank in 2002, market-neutral funds looked like heroes, returning 5.0% for the year and outdoing the S&P 500 by 27.1 percentage points. Then for the next five years, the S&P 500 rallied, and market-neutral funds lagged behind, generating modest single-digit returns.

Proponents say that alternative funds are attractive because they can deliver modest results consistently, helping portfolios stay in the black during downturns. "All investors should have alternatives in their portfolios," said Nadia Papagiannis, a Morningstar analyst who spoke at the alternative fund conference. "Anything that can help you to diversify is good."

Finding sound alternative funds can be difficult. Most funds have short track records. Investors who have never tried alternative funds should stick with proven managers.

A top market-neutral choice is Merger Fund (MERFX), which has returned 4.3% annually during the past five years, compared with a return of 2.9% for the S&P 500.

The fund employs merger arbitrage, buying shares of companies that are about to be acquired. Sometimes it shorts the stocks of acquirers.

A long-short fund with a compelling track record is Caldwell & Orkin Market Opportunity (COAGX), which has returned 5.7% annually for the past five years. Portfolio manager Michael Orkin has been running the fund since 1992.

Readers Also Like:


Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%
YHOO $44.28 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs