However, when accessing hedge fund-esque strategies, costs has been a very limiting factor on total returns as the high fees may eat away at potential alpha, Yasmin Dahya, Head of Americas Beta Specialist for J.P. Morgan Asset Management, said.
“Investors would pay ‘2 & 20’ to gain access to additional asset classes or sub-categories of investments (exotic beta) or they would pay to gain access to unique strategies that enhance the risk/return profile of their portfolios,” Lunt said.
“There are many talented hedge fund managers that more than justify their fees. However, some of the favorite hedge fund (and active mutual fund) strategies are now available within ETFs,” Lunt added.
JP Morgan ETFs
The JPMorgan Diversified Alternatives ETF (NYSEArca: JPHF) combines various hedge fund-esque, alternative investment strategies in an easy-to-use ETF wrapper. Specifically, JPHF will include equity long/short, event driven and global macro based strategies. The liquid alternative ETF comes with a 0.85% expense ratio.
ETF investors can also individually target each of these hedge fund-esque strategies through focused ETF strategies, including the JPMorgan Managed Futures ETF (NYSEArca: JPMF), JPMorgan Long/Short ETF (JPLS) and JPMorgan Event Driven ETF (NYSEArca: JPED). JPMF has a 0.59% expense ratio, JPLS has a 0.69% expense ratio and JPED has a 0.85% expense ratio.
Dahya argued that these types of alternatives can be incorporated to a traditional equity and fixed-income mix, suggesting a 10 to 20% mix of these liquid alternatives. Traditional asset allocators would usually lower equity risk by moving some of their equity allocation to fixed-income, but considering the rising rate environment ahead, it is important to consider alternatives as a way to limit risks.
Financial advisors who are interested in learning more about alternative investment strategies can watch the webcast here on demand.