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Mutual Fund News

Those exotic 'alt' funds can be profitable - but caution advised

What are we looking for?

The best performing non-traditional mutual fund investments in the past year.

The volatility of the Great Recession has receded, and some market watchers are predicting the mutual fund industry will see more alternative funds created in the coming years. Unlike other mutual fund categories, these funds may use complex trading strategies in their effort to eke out returns. Let's see see how the top performers in the Alternative Strategies category have fared in the past year.

The screen

We looked at the 15 best performers for the year ended May 31. U.S. dollar and duplicate versions of funds were excluded. Many funds in this category have high entry points, but we left out those with a minimum investment above $25,000.

What did we find?

So-called "alt" funds posted some big gains, but investors need to know what they're buying, and in some cases will need a strong stomach to ride with these investments.

The top performer in the screen is Horizons AlphaPro Enhanced Income Gold, gaining 40.9 per cent in the period. But the fund, which invests in North American equity and equity-related securities with exposure to gold mining and exploration, is on a comeback from a steep decline in 2012 - last year, it lost 10.8 per cent overall.

The Venator Investment Trust-Class A ranked second, with returns of 30.2 per cent, and its rise has been more consistent over the past two years. This fund assumes long and short investment positions in equity, debt and derivative securities and aims to replicate the performance of the Venator Founders Fund, which seeks out "outlier" investments.

Funds in the Alternative Strategies category use more complicated investing methods, such as short-selling, hedging and leveraging through derivatives. A fund falls in this category if its mandate includes these tactics, if short-selling exceeds 2 per cent in any security, or if short positions make up more than 10 per cent of the fund's value.

These exotic investments can be profitable, but investors need to use extra caution, according to an independent U.S. regulator.

The Financial Industry Regulatory Authority (known as FINRA) cautioned last Tuesday that investors may not be aware of the distinctive qualities and risks of these funds.

"FINRA is warning investors to carefully consider not only how an alt fund works, but how it might fit into their overall portfolio before investing," Gerri Walsh, FINRA's senior vice-president for investor education, said in a statement.



Assetsto May 31/13Calendar Year Returns
FundMER($ mil.)1 Year3 Years5 Years10 Years20122011201020092008
Horizons AlphaPro Enhanced Inc Gold0.8038.240.87%-10.78%
Venator Investment Trust-Cl A2.0011.730.16%10.74%7.62%25.16%-14.02%16.83%39.93%-24.82%
Venator Founders-Cl A2.005330.15%10.75%8.78%25.15%-14.01%16.96%40.29%-19.86%
CC&L Market Neutral A2.50101.925.61%32.97%-10.36%
Lycos Value Class O1.001.821.79%21.68%33.75%27.45%-3.88%14.80%
BMO Covered Call DJIA ETF0.65102.621.34%8.61%
Venator Income-Cl A2.0090.321.24%14.78%19.34%2.68%17.86%
Picton Mahoney L/S Emerging Mkts- A2.00820.44%21.28%
Portland India Select Business0.720.10%31.14%
BluMont Hirsch Performance1.1731.919.15%7.77%1.86%8.13%3.75%-7.77%21.61%27.42%-35.02%
Picton Mahoney Glo Long Short Equ-A2.009.95918.71%11.32%2.07%8.74%-2.79%13.30%5.46%-21.13%
Aston Hill Growth & Income Series X1.33161.418.55%13.92%7.44%16.94%3.23%14.64%49.61%-36.71%
JM Catalyst Fund2.0016.816.68%14.90%13.28%12.63%11.24%18.18%12.55%4.56%
Vertex Fund-A3.13110016.64%8.14%6.76%14.17%14.79%-11.70%19.46%84.18%-40.25%
Globevest Capital Alternative Grw1.2012815.39%
S&P/TSX Total Return13.34%5.40%-0.05%9.05%7.19%-8.71%17.61%35.06%-33.00%
Source: Lipper

© 2007 The Globe and Mail. All rights reserved.

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