Is Alternative Investment a Successful Strategy?

Abstract

This article evaluates the performance of alternative mutual funds (AMFs) from January 2000 to June 2022. The author discovered that monthly returns of alternative mutual funds have a high correlation with global and US stocks, and may not provide investors with diversification options. Correlation among average monthly returns of AMFs and US and global equities increased after the 2008 economic crisis and peaked during the COVID-19 induced lockdowns until the first vaccinations. For the period beginning in January 2000 and ending in July 2007, before the onset of the economic crisis, absolute performance, as measured by average monthly returns, showed that alternative mutual funds outperformed both US and worldwide stocks. Before July 2007, AMFs also outperformed US and worldwide equities in terms of risk-adjusted performance. After July 2007, AMFs lagged US stocks. During the COVID-19 induced lockdowns until the start of the first vaccinations, AMFs did not outperform US equities but they did outperform global equities in terms of risk-adjusted performance.