Mainstream Investors Embrace Alternative Strategies
Transamerica Capital, Inc.’s COO Explains How a Mutual Fund Structure Makes Alternatives More Accessible
DENVER, July 13, 2011 – With alternative assets, average investors can now build a portfolio similar to those of institutional and high net worth individuals, allowing them the opportunity to potentially enhance returns and reduce risk. Using a mutual fund structure, they can avoid high investment minimums and limited transparency traditionally associated with alternative investments, says Blake Bostwick, Chief Operating Officer of Transamerica Capital, Inc.
“The Great Recession has changed how people perceive risk,” Bostwick says. “Unpredictable volatility has caused a lot of investors to act on their emotions, and they’re seeking investment options that can help mitigate risk.”
Many investors have turned to alternative investments to manage risk and potentially improve returns. Alternative investments are those that are considered to be outside the realm of traditional stocks, bonds, and cash, and include both asset classes and unique trading strategies. Some common alternative asset classes are real estate and commodities, while alternative strategies include long/short, global macro, and market neutral. AltStrats.com offers a comprehensive overview of how these asset classes and strategies may reduce risk and enhance diversification.
Alternative investments are gaining popularity at a rapid pace. Morningstar, Inc. recently added 10 new alternative investment categories to its fund classification system, and found that these categories had almost $26 billion in net inflows for 2010. 1 Additionally, the 2010 Morningstar/Barron’s Alternative Investment Survey of U.S. Institutions and Financial Advisors found that more than 70% of institutions expect alternatives to make up more than 10% of their portfolios in the next five years, and 37% expect that allocation to be greater than 25%.2
Why the sudden interest? Perhaps it’s because alternative investments have the potential to give investors better risk-adjusted returns. Between January 2000 and December 2009, the annualized total return for the Russell 3000®, which is commonly used as a proxy for broad U.S. equity market performance, was an average loss of 0.20%, while the standard deviation was 16.50%. At the same time, the Dow Jones Credit Suisse Hedge Fund Index, which includes convertible arbitrage, short bias, event-driven, market neutral, global macro, and others, had an annualized total return of 6.57% and a standard deviation of 6.18%.
“Alternative investments can help limit an investor’s downside risk while still capturing some upside potential, making these kinds of investments appealing to today’s investor,” says Bostwick. “Most types of alternative investments, whether non-traditional asset classes or managed futures, have historically exhibited a low correlation to the broad equity market.”
This lower correlation can reduce a portfolio’s overall volatility. Take, for example, the peak to trough declines between January 2001 and January 2010 of the previously mentioned indexes. During this time, the maximum drawdown for the Russell 3000 was a 51.20% loss, while the maximum drawdown for the Dow Jones Hedge Fund Index was a 19.68% loss.
One way an investor can add alternative investments to their portfolio is through a mutual fund. Until recently, alternative investments were typically limited to high-net-worth or institutional investors because of the high investment minimums and qualified investor rules traditionally associated with alternative investments.
In a mutual fund, “the average investor now has access to similar diversified, quality strategies that were once limited to a select few, and people are taking advantage of this opportunity,” Bostwick says.
Bostwick says one of the more efficient ways to take advantage of the complex alternative investments landscape is to utilize a professional manager who uses strategic diversification among alternatives. The Transamerica Multi-Manager Alternative Strategies Portfolio, with Morningstar Associates, LLC, serving as the portfolio construction manager, is a comprehensive solution that takes a diversified mix of alternative investments and combines them into a single investment vehicle accessible to the retail investor.
“Our alternatives fund is diversified across multiple strategies, including commodities, global real estate, emerging market debt, long/short equity, inflation protected bonds, multi-sector bonds, high yield bonds, and managed futures, among others,” Bostwick says. “This provides exposure to a wide range of alternatives through a professionally managed fund. They have the potential advantage of the managers’ due-diligence and transparency in the mutual fund structure.”
The Transamerica Multi-Manager Alternative Strategies Portfolio, with Morningstar Associates, LLC serving as the portfolio construction manager, provides investors with transparency and regulatory oversight. The Portfolio is publicly traded, and is designed to expose investors to the potential benefits of a diversified blend of alternative assets and strategies and seeks to avoid over-exposure to any one manager or alternative investment.
Financial professionals interested in learning more about the Transamerica Multi-Manager Alternative Strategies Portfolio, please call Sales Support at 1-800-851-7555. Investors may call Customer Service at 1-888-233-4339.
1. Button, Keith. Alternative Mutual Funds Go Mainstream. Registered Rep. [Online] April 1, 2011
2. Satter, Marlene. Morningstar Finds Rising Use of Alternative Investments by Advisors. Advisor One.com. January 18, 2011
Transamerica Funds are mutual funds advised by Transamerica Asset Management, Inc. and distributed by Transamerica Capital, Inc. Transamerica Investments is a service mark for investment related services offered by Transamerica Funds, Transamerica Asset Management, Inc. and Transamerica Capital, Inc.
Mutual funds are subject to market risk, including the loss of principal. Alternative strategies are not suitable for all investors. Many alternative strategies use sophisticated and aggressive investment techniques. Certain alternative strategies may be tied to hard assets such as commodities, currencies and real estate and may be subject to greater volatility as they may be affected by overall market movements, changes in interest rates or factors affecting a particular industry, commodity or currency, and international economic, political, and regulatory developments.
Shares of the Funds may only be sold by offering the Fund’s prospectus. You should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. The prospectus contains this and additional important information regarding the Funds. To obtain the prospectus and/or a summary prospectus, please contact your financial professional or go to TransamericaInvestments.com. The prospectus should be read carefully before investing.
The Fund’s adviser, Transamerica Asset Management, Inc. has chosen Morningstar Associates, LLC, a registered investment advisor and wholly owned subsidiary of Morningstar, Inc., to serve as portfolio construction manager to the Transamerica Multi-Manager Alternative Strategies Portfolio. Morningstar Associates is not acting in the capacity of an advisor to individual investors. Morningstar Associates is not affiliated with Transamerica Asset Management or its affiliates.
MPEASC0611
Tags:
