September 10, 2012

Patton’s Fund Picks, Pt. 9: Multi-Alternative and World Allocation

Over the past nine weeks now we’ve been discussing my favorite mutual funds. We've covered numerous subcategories in the stock, bond and alternatives universe. These funds were selected based on an in-depth, in-house analysis; last week I shared my favorite picks in market neutral, real estate and commodity funds.

This week I will conclude with the Multi Alternative and World Allocation categories. Even though the latter is not an alternative investment per se, because it encompasses such a wide array of potential investments, we'll discuss it here. 

Multi Alternative

I found this particular fund in 2007, just over two years after its inception. The story was intriguing. Intriguing enough for me to make an exception and invest in a "newer" fund. The fund is Absolute Strategies I (ASFIX). ASFIX has a slightly different structure than most. Manager Jay Compton has the responsibility of identifying top echelon managers with a variety of disciplines and allocating a portion of the portfolio to each on a sub advisory basis. In essence, the sub advisors do the heavy lifting and Mr. Compton monitors them. Included in this fund are: long-short, market neutral, distressed debt, domestic and global equity, convertible arbitrage and a few others. I like to refer to it as a "mutual fund hedge fund." It has some of the structure of a hedge fund but with the regulations that come with a mutual fund. 

The good news is that ASFIX has been a consistent performer, it has a good risk-return profile and it won't hurt you when markets plummet. The bad news is that it's closed. However, it is a slightly different close. For example, if you, as advisor, already have client's money in the fund, you may continue adding, even with new clients. It's sort of a modified "soft close."

World Allocation

I have two favorites here, both from Bill Gross and Mohamed El-Erian’s PIMCO. The first is PIMCO All Asset Inst (PAAIX). The other is PIMCO All Asset All Authority (PAUIX). Rob Arnott is the manager of both. The All Authority fund is an expansion of the All Asset version. The difference is that the All Authority fund can go short. In essence, both funds invest in a wide variety of PIMCO funds from commodities to real estate to bank loans, etc. Although the All Authority fund has posted higher returns since 2009, it has a slightly higher standard deviation and hence, a slightly lower Sharpe Ratio. To sum it up, PAUIX has more flexibility as it can take short positions to protect in a down market.

This concludes my favorite picks. I hope you've found the series useful. 

Thanks for reading and have a great week!

 

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