Mutual Fund Buzz for June 10: Alternatives On The Rise?

Hedge fund strategies go mainstream.

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Today's fund news:

The new asset allocation doesn't look like the old. Morningstar talks to Harold Evensky, and in the course of a lengthy interview with the long-time wealth manager, he talks up a few surprising funds—specifically, the AQR Diversified Arbitrage Fund (ADAIX), run by Todd Pulvino and Mark Mitchell, and the Natixis ASG Global Alternatives Fund (GAFAX), run by the equally quant-y Andrew Lo. Those two are among the leading edge of long-short, arbitrage, and other hedge fund strategies being turned into mutual funds over the past few years. It's a sign that asset managers may be wading further into more exotic terrain formerly occupied by hedge funds alone. Evensky says the shift is a matter of low-quality products on offer before funds like these came along, and the hope that they'll offer lasting diversification since they're not highly correlated with the rest of the market. It's interesting that this pursuit of safety involves largely unproven funds (neither is more than a few years old, though Lo and Asness have good records) that evolved using strategies that mirror behavior in the riskier corners of Wall Street. It'll be interesting to see who follows suit.

Morningstar: A Common-Sense Approach to Asset Allocation

[See Why Investors Are Pouring Into Alternative Investments from U.S. News.]

Bond inflows beat stocks for another week despite increasing talk of a "bond bubble." Equity fund outflows hit $654 million in the week, though that's a drop in the bucket compared with the $17.39 billion that fled stocks in the previous week. And again, domestic funds had a worse time than foreign funds, which saw modest inflows. Meanwhile, bond funds drew $4.25 billion, up from estimated inflows of $2.87 billion during the previous week. Taxable bond funds saw estimated inflows of $3.38 billion, while municipal bond funds had estimated inflows of $869 million, according to the ICI. Looking for a data point to counter that bond optimism? Gold, that also-bubbly haven against bond-bubble-busting inflation, keeps pulling more fund investors. May inflows to the SPDR Gold Shares hit $4.35 billion in May, the third biggest month ever.

ICI: Weekly Long-Term Mutual Fund Flows

[See In Gold's Shadow: How Other Metals Fit Into Portfolios from U.S. News.]

Euro stock bonus: In a case of "it's tougher than it sounds," James Stewart tracks down two European stock funds to own if you're keen on avoiding hefty exposure to both BP and those shaky European financials: Invesco European Growth (AEDAX) and the Mutual European Fund (TEMIX).

WSJ: A Europe-Stock Portfolio I Can Live With

Corrected on : Corrected on 06/17/10: The AQR Diversified Arbitrage Fund is run by Todd Pulvino and Mark Mitchell.