For similar reasons, we're no longer classifying benchmark-oriented currency or trading strategies as alternative.įor example, long-short equity has long been considered an alternative strategy by many. As such, these strategies are better considered alongside other equity, fixed-income, or allocation strategies. Strategies such as long-short equity, long-short credit, and market-sensitive options-based funds tend to modify traditional equity or credit risks rather than diversify them. As such, shorting, and derivative use more broadly, should not be viewed as the defining attribute of alternative strategies. While such measures may modify a portfolio's risk levels, these strategies still primarily provide investors exposure to traditional asset classes. Many managers in traditional asset classes, particularly in the fixed-income and asset-allocation categories, routinely utilize short exposures, typically via exchange-traded funds or derivative instruments, for risk-management purposes or as an additional source of excess return. These strategies not only have the ability to short securities, but they also aim to provide access to differentiated and/or diversifying exposures with a high degree of flexibility and little correlation to traditional market indexes. Application may be across single or multiple asset-classes using a variety of investment techniques. These strategies tend to focus on capital preservation, long-term portfolio diversification, or enhanced risk-adjusted returns in isolation or combination. ![]() category group.Īnd here are the new alternative categories:Īlternative investment strategies attempt to expand, diversify, or eliminate the dominant risk factors contained in traditional market indexes, such as equity, credit, and rates indexes. Trading categories are being reclassified in the miscellaneous U.S.The multicurrency category has been retired, with absolute-return-oriented strategies moving to macro-trading and benchmark-oriented strategies moving to the world-bond or emerging-markets local-currency bond categories, as appropriate. The single-currency category is moving to the taxable-bond U.S.The managed-futures category is being renamed systematic trend in order to align category names globally.The market-neutral category is splitting into three new categories: equity market-neutral, event-driven, and relative value arbitrage.The multialternative category is splitting into two new categories: multistrategy and macro-trading.The volatility category is being retired, and funds in this category are moving to options-trading.category group) and options-trading (staying in the alternative U.S. The options-based category is splitting into two new categories: derivative income (in the nontraditional equity U.S.The long-short credit category is being retired, and funds in this category are moving to the nontraditional bond category.category group within the equity global broad category group. The long-short equity category remains intact but is moving to the new nontraditional equity U.S.Before we explore the changes in more detail, here's a summary: The list of category changes is long, but all of them tie back to one of those themes. Align alternative category classifications across regions to provide greater consistency globally.To help investors make more relevant comparisons between alternative strategies that are driven by similar market dynamics and pursue similar objectives by splitting large, heterogeneous categories into smaller, more focused peer groups.To differentiate between strategies that aim to minimize exposure to traditional market risks (which we define as alternative strategies) and those that may employ similar instruments and techniques-such as heavy use of derivatives, shorting, and options overlays-while maintaining exposure to traditional market risks.Three main objectives are driving the alternative category changes: ![]() Morningstar Direct and Office clients can find the updated category classification methodology here and an FAQ here. In order to better define the ever-evolving alternatives landscape and improve the information available to investors when considering these investments for their portfolios, we are enhancing the Morningstar Category classification system, with the changes going into effect on April 30, 2021.
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