The Alternative Strategies Fund was created based on the following fundamental beliefs:
First, Litman Gregory believes it is possible to identify investment managers who will deliver superior long-term performance relative to their passive benchmarks and peer groups. This belief is based on Litman Gregory’s extensive experience evaluating managers and mutual funds on behalf of their clients. The four managers in this fund were chosen for their specialized and demonstrated expertise, as well as for their complementary, non-correlated investment approaches.
Second, not only do we want high-quality managers, but we want to offer access to them at an acceptable cost. We spent the last couple of years engaged in research to find the right mix of managers we believe can deliver on both fronts.
Third, this fund doesn’t seek to simply replicate what each manager is already doing elsewhere, but to bring investors additional value-add through flexibility, concentration, and the ability to be more opportunistic.
The Litman Gregory Masters Alternative Strategies Fund Concept
The Alternative Strategies Fund is a multi-manager fund that combines alternative and absolute-return-oriented strategies chosen based on Litman Gregory’s conviction that each individual strategy is compelling and that collectively the overall fund portfolio is well diversified. This fund is intended to complement traditional stock and bond portfolios by offering diversification, seeking to reduce volatility, and to potentially enhance returns relative to various measures of risk.
This fund will contain many risk-control factors including the selection of strategies that seek lower risk exposure than conventional stock or stock-bond strategies, the risk-sensitive nature of the managers, the skill of the managers, and the overall strategy diversification.
Typically, each manager will run 25% of the portfolio, but Litman Gregory may tactically alter the managers’ allocations to attempt to take advantage of particularly compelling opportunities for a specific strategy or to further manage risk. We will have a high hurdle for making a tactical allocation shift and don’t expect such top-down shifts to happen frequently.
Selection Criteria — What Makes a Manager an Alternative Strategies Fund Candidate?
The four managers in this fund were chosen for their specialized and demonstrated expertise, as well as for their complementary, non-correlated investment approaches.
We looked for skilled managers who either 1) ran strategies that we believed were low risk and not strongly correlated with traditional financial assets (especially stocks) or 2) had the ability to take on more risk but had a strongly risk averse mindset and approach with an emphasis on preservation of capital and a track record consistent with that objective. We also wanted managers willing to be opportunistic and take somewhat more risk at times when valuations suggest that risk should be well rewarded. Other factors we considered included enthusiasm for being part of this fund, how the strategies complemented each other, a long history, and reasonable fees.
We narrowed our list down to four managers/firms who ran different types of strategies and who each had a combination of experience, expertise, performance track record, a risk-averse mindset or investment philosophy, strong focus on risk management, and reasonable fees. We then did intensive additional due diligence on these managers to assess whether we could gain confidence that they would be able to deliver on their risk/return objectives for these strategies and what they would bring to our fund that would be different and value-added. We believe we have achieved that goal with each manager.
Diversification does not assure a profit and does not protect against a loss in declining markets.