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Morningstar Launches Visual Research Framework for Alternative Investment Funds

Morningstar is launching a style box for alternative investment funds to provide better insight into the volatility and diversification benefits of such funds. The “alternatives style box,”  similar to equity and fixed-income style boxes, will allow for comparisons between funds running similar strategies and other liquid alternative strategies in a single glance, according to Morningstar. The style box provides a visual presentation of stock and fund characteristics and can be used to identify the diversification traits of a single fund, create better peer groups, determine changing diversification patterns over time, and compare two alternative funds side by side. Standard peer and benchmark comparisons have not always provided an appropriate basis to measure alternative funds’ performance because alternative funds may not invest simply in stocks or bonds and may have multi-faceted investment objectives. Morningstar noted that with alternative strategies, diversification and volatility are two of the most important factors investors should consider when evaluating such strategies and how they fit within a portfolio of traditional investments.

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