) -- During the worst of the financial crisis, companies rolled out absolute return funds, which target a specific gain, usually about 6% to 8% a year, regardless of stock- and bond-market conditions. The funds, in the form of mutual funds and exchange traded funds, combine long and short positions.

Now there are many absolute return funds. One company,


, went into business, apparently, for the sole purpose of creating exchange traded funds in this niche.

By using a wide range of strategies, absolute return funds are complex. They dampen volatility and offer access to "sophisticated" hedge-fund strategies. The recently listed

iShares Diversified Alternatives Trust

(ALT) - Get Report

may be the most complex yet. (Technically, it's not an ETF, but an exchange traded product.)

The trust follows three hedge fund-like strategies: curve arbitrage, momentum/reversal and fundamental relative value. Holdings comprise mostly futures contracts on equity indexes, bond indexes and currencies.

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Curve arbitrage focuses on perceived price discrepancies between segments of the fixed-income market. If a spread is wider or narrower than normal -- "normal" can be a subjective term -- the trust managers could implement a long-short combination. Momentum/reversal involves technical analysis. Fundamental relative value is best described as opinions derived from fundamental analysis of asset classes.

A primary attribute of exchange traded products is their transparency. For people constructing and managing a portfolio, knowing what funds own helps avoid unintended overweights or underweights of sectors or countries. While Diversified Alternatives Trust is transparent, and the holdings are updated on the iShares Web site with a one- or two-day lag, the intermingling of the three strategies in the fund makes it difficult to understand what the managers are doing at any given moment.

For example, as of Dec. 14, the fund was long five Spanish IBEX index futures and short two Amsterdam index futures. There's no way to know whether the two positions, among about 30, were part of the same or a different strategy. Further muddying the waters, perhaps, was the fact that the fund was long $4.1 million of Australian dollar/U.S. dollar forward contracts that expire in January while being short $1.4 million of the same forward.

This isn't an attempt to second-guess the managers. It serves to suggest that few shareholders will be able to wrap their heads around the investment opinions implemented in the fund. I emphasize the need to take plenty of time to read the prospectus, especially the risk factors. One risk, which was new to me, was the inexperience of the managers. Based on the prospectus, one of the managers appears to have been in the business since 1991 and the other since 2000.

Whatever the success or shortcomings of the Diversified Alternatives Trust turn out to be, there are clearly a lot of moving parts. I've written several articles in the past few years about funds that seek to deliver an absolute return. One I've mentioned a couple of times and held on to for clients is the

Rydex Managed Futures Fund

(RYMFX) - Get Report

. The fund goes long or short different commodities and financial futures based on intermediate-term relative strength. That is its only strategy. Hence, it's much simpler to understand and follow than the Diversified Alternatives Trust.

At the time of publication, RYMFX was a client and personal holding.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;

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