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Multialternative vs. World Allocation? Morningstar makes a distinction between Multialternative
and World Allocation. The definitions are soft and there’s some overlap between the
two, but there are important differences in those two categories. The Multialternative
is exactly as the name suggests a collection of multiple alternative investments. In other
words, you’ll find a portfolio that often goes long and short in equities, long and
short in bonds, long and short currencies, maybe commodities, and bring all of that together
in a go anywhere or opportunistic investment style. Because of that investment style, it
tends to have a relatively low correlation with the equity market.
The World Allocation category on the other hand is a little bit more traditional or balanced.
It will invest in equities and bonds and currencies around the world, maybe commodities, but generally
speaking it will lean more to being long rather than to being long and short. Because of that
construct, it tends to have a higher correlation with the equity market. So in the end, there’s
a good bit of overlap between Multialternative and World Allocation, but the differences
in the styles lead to different characteristics and the most important one is the lower correlation
that exists with the Multialternative investment category.
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only and is not intended as investment advice nor is it a recommendation to buy or sell
any particular security. Any discussion of particular topics is not meant to be comprehensive
and may be subject to change. Any investment or strategy mentioned herein may not be suitable
for every investor. Factual information has been taken from sources we believe to be reliable,
but its accuracy, completeness or interpretation cannot be guaranteed. Past performance is
not indicative of future results. Information and opinions expressed are those of the presenter
and may not reflect the opinions of other investment teams within William Blair & Company,
L.L.C.’s Investment Management division. Information is current as of February 3, 2014
and subject to change without notice. Alternative investments may use investment
techniques and financial instruments that are considered aggressive and typically involve
a high degree of risk. Such techniques may include short sales or other strategies that
are intended to provide inverse exposure to a particular market or other asset class,
as well as leverage and may subject a portfolio to potentially dramatic changes (including
losses) in a portfolio’s value. Alternative investments commonly include the use of derivatives,
or investments where the investor does not own the underlying asset, but instead makes
a bet on the direction of the price movement of the underlying asset. Examples of derivatives
include options, swaps, futures and forward contracts. Derivatives are generally used
as an instrument to hedge risk but also can be used for speculative purposes. There are
various types of risks associated with derivatives such as market risk, liquidity risk, credit
risk, legal risk and operations risk. These investments are intended for sophisticated
investors who are willing to bear the loss of their entire investment and may not be
suitable for all investors. © William Blair & Company, L.L.C