Updated Thursday, October 2, 2014 as of 4:30 AM ET

Why Benchmarking Alts Can Prove Them Obsolete

Benchmarking alternatives that fit in clients’ portfolios can be tricky. But for some alternatives, once you consider the benchmark, the more difficult part is justifying the investment's place in the portfolio.

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Comments (1)
To be honest, I am quite skeptical about most alternative and their ability to deliver risk adjusted returns in products that offer daily liquidity. However, these "benchmarks" of Mr. Roth's are some sort of a bad joke. While Mr. Roth says the benchmark for managed futures is zero minus the expenses, here are the facts of the Barclays CTA index going back to January 1980.

Compound Annual Return 10.23%
Sharpe Ratio 0.38
Worst Drawdown 15.66%
Correlation vs S&P 500 0.01
Correlation vs US Bonds 0.13
Correlation vs World Bonds 0.00

Does that look like zero minus expenses? This index has been negative the past 3-4 years which corresponds to the period these products have been available in mutual funds. Applying inappropriate benchmarks to anything is a waste of time, pure and simple.
Posted by Ted S | Tuesday, June 24 2014 at 2:41PM ET
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