Why Alt Funds Underperform

The financial crisis of 2008, when all risky asset classes suffered dramatic losses, led many investors to seek out “alternative” investments that claimed to provide downside protection, or positive returns independent of the market environment. This resulted in the introduction of a new segment of mutual funds that operate at the intersection of traditional mutual funds and hedge funds.

These funds are frequently referred to as “liquid absolute return funds”—although they are marketed under many different names, such as total-return funds, go­anywhere funds or benchmark-free funds.

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