Index for an alternatives portfolio? wrap, precious, include, estate

ShooterMcCFA

Anyone have a good idea? I was thinking for a section of a wrap fee program that will include real estate, precious metals, commodities (Oil, grains)? I thought of using the HFRI FOF but that doesn’t quite work. Any ideas?

troymo

I view the benchmark as what you should invest in if you don’t have any views. An investor might prefer a portfolio with a 10% standard deviation. I could optimize and find the optimal 10% standard deviation portfolio and use that as a benchmark before putting any of my views on top of it. The 10% standard deviation portfolio would not be consistent through time and would adjust to changing market conditions. That’s a problem for most people since they prefer a pre-set list of securities, like 60/40 allocation between stocks/bonds.
Regardless, for many an alternatives fund, they aren’t performing a benchmark-relative optimization anyway. They are optimizing based on total returns. For instance, there’s no investment out there that will return the risk-free rate plus 8%. Why bother pretending that there is?
Well that would be because they link performance fees to “benchmarks”. Well then, just call 8% plus risk-free the performance target and say you try to make absolute returns without too much risk.

luckygiftvn

Blended benchmark is the way to go.

kasinkei

You can try benchmarking with managed futures index, that should be perfect to your needs.

transferpricing

8% absolute seems harsh in years like this one when the market is getting crushed.

chunty

We just use a simple 8% absolute return to bench our alternatives slice which includes HFs, commodities, RE, etc…

chandsingh

Index for my alternative slice

tikfed

Either a blended benchmark based on weightings of the AIs in that sleeve or I just use a absolute return for a client-facing benchmark.

mnieman

Not aware of an index that does that, but there are several funds. The oldest and most well known is PRPFX. There are about a dozen other multi-asset alternative funds out there. Some of fund-of-funds, which I don’t really care for. Others offer a form of slice management that have a bit more flexibility.