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Hello everybody welcome to another episode of Erickson TV, Hello Lauren. Hey Curtis,
hey everybody. Hey Lauren we talk about a lot of different investment topics and I thought
this one would be important because we’ve talked about hedge funds in the past and about
the high expense ratios and how they typically don’t do as well in the market. Right. So
there’s another type of fund called alternative funds and the reason I think this is important
is that we always talk about in the past mutual funds in-flow and out-flows. So this year
because the markets, hasn’t done much, ya hasn’t done much but their actually still
influencing the mutual funds which is good. Roughly 50 billion of new money in the mutual
funds. That’s good. What’s interesting is about half of that money, or about 26 billion
has gone into alternative funds. So this is a USA Today article and they talk
about different types of alternative funds. They definitely have higher expense ratios
than typical mutual funds by quite a bit actually. Right. They use strategies borrowed from hedge
funds but they make it so there’s less dollars to get involved. Some examples of alternative
funds would be funds that bet against the market like bear market funds or they have
one other version called long and short funds which they try to say its going to do well
in both bad ending markets where it’s a neutral type fund. Right. There’s also a
multi-currency fund. So, the takeaway from this is I just wanted
to talk about some numbers. So over the last three years if a person invested in just a
basic stock market index like the S and P 500, they would have made nearly 20 percent
per year. Right. So these are some of the alternative funds that have gained in popularity.
So the long and short, or what they call the neutral fund has gained only 8.3 percent during
that same time period. Right. The multi-currency funds using hedge funds strategies with the
international currencies and the US currencies actually fell .78 percent per year. Which
it should. Ya. Always. Bear market funds, which bet against the market, right. So in
my mind, if you’re betting against the market you should have probably lost 20 percent per
year. Right. These actually lost 27 percent per year. Okay. And then last but not least
the multi-alternative fund which is a combination of all type of strategies built into one package
alternative fund have made about 3 percent per year. Okay. So what’s your takeaway?
Okay so just some interesting technical points, those bear market funds and those “ultra
bull funds” you know that supposedly double the returns or whatever, they get you even
worse returns than you would think because the downs hurt worse than the ups feel good
with those funds because their based on daily movements in the market. The multi-currency
fund is particularly bizarre to me because the expected returns of a basket of currencies
should always be zero. Right. And then you know you just subtract your expenses. I don’t
know what on earth anyone’s hoping to get out of multi- currency funds. Ya. And then
you know the other stuff, the longshore fund I mean that’s just hoping and active management.
Its just hope. And you know these things are popular just because there is always something
new and you know maybe this will be impressive and the currencies play on fear of the US
dollars. The bear market funds, well that ones obvious, fears of things going down.
Its all just fear, fear fear. There’s not much of an actual investment strategy.
Right. I think the takeaway to end this episode that if someone wants to control the risk
of the overall stock market there’s a way to do that using diversification, bringing
in short term fixed income and you could do it a lot less expensively. Yes. Alright well
thank you for watching this episode of Erickson TV, we’ll see you next time. Bye now. See
ya.