Fundsters and investors alike have been high on liquid alternatives for a few years now, and the recent stock market volatility is testing their mettle. Yet how they're faring seems to depend on how you look at it.

Reuters' take is that "Alternative funds show mixed results over past month." InvestmentNews reports that "Liquid alts funds pass first real test with flying colors". And the Wall Street Journal reports that "'Alternative' Mutual Funds Providing Limited Protection."

For its smiling view on liquid alts funds' recent performance, InvestmentNews looked just at returns for Friday and Monday. The S&P 500 fell 3.13 percent on Friday and 3.94 percent more on Monday; each of the seven liquid alt Morningstar categories fell by less than half of those numbers.

Reuters' "mixed" view on liquid alt fund performance comes from return data over a bigger chunk of time: between July 20 (the market's peak) and August 24. Five of the seven categories of alt funds were down in that timeframe: U.S. long-short equity funds, for instance, fell 5.5 percent in that month. Yet bear market funds gained 19 percent in that month, even as the S&P 500 fell 10.8 percent.

The WSJ's less friendly take on liquid alts funds comes from an even longer time frame, the past three months, and by comparing them not with the overall stock market or cash but with what the paper describes as "the classic portfolio diversifier": intermediate-term bond funds. The WSJ notes that most of the liquid alts categories lost less than the S&P 500 but more than those bond funds, which dropped 0.2 percent on average. And the paper highlights two alts fund categories, commodities funds and energy master limited partnership funds, that have suffered big losses over the past three months (substantially more than the S&P 500 lost).

So, on the big down days, liquid alts funds lost less than the overall market. Many didn't protect as well as cash, though unlike cash many alts funds participate in at least some of an upmarket's gains, too. 

Edited by: Neil Anderson, Managing Editor


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