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Dispersion of Alternative Managers

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Dispersion of Alternative Managers

In his latest AlphaCore Insights, Director of Research Jonathan Belanger explains why the allocation of alternatives is such a critical step. The concept of dispersion – or how accurately an average describes one of its members – can be a tricky one in this case. Because alternative strategy funds have such a wide distribution of returns, taking a category average is not a good representation of alternative performance. In fact, dispersion in alternatives can be two to four times greater than with traditional strategies. This is because at their core, alts are flexible – and that flexibility often comes at a cost.

When describing an allocation to alternative strategies, we believe an investor “trades market risk for manager risk” – meaning the how and why a manager succeeds (or underperforms) is the most important part of the manager selection process. The complicated and time-consuming nature of alternatives as it relates to dispersion means investors really need an expert well versed in these vehicles leading their portfolio.

For the full report, CLICK HERE.