Why Litman Gregory Created a Liquid Alternatives Fund

When Ken Gregory first went looking for a liquid alternatives fund, he had the following items on his checklist:

  • High-quality, credible sub-advisors running understandable strategies that provided diversification and had low correlation to one another;
  • Low levels of absolute risk;
  • Returns in the mid-to-high single digits; and
  • Fees are reasonable relative to performance.

Mr. Gregory’s search turned up empty, so in response he co-founded the Litman Gregory Masters Alternative Strategies Fund (Tickers: MASFX and MASNX), which launched nearly six years ago on September 30, 2011. In this video, Mr. Gregory and Litman Gregory’s CIO, Jeremy DeGroot, look back on the fund’s creation and how its performance has measured up since.

From its inception through June 30, 2017, the Litman Gregory Masters Alternative Strategies Fund (MASFX) returned an annualized 5.41%, easily besting Morningstar’s Multialternative Category’s returns of just 1.75% over that same time. The fund’s risk adjusted performance is also very solid, with a vastly superior Sharpe ratio of 1.60 versus the category average of 0.51.

Multi-Manager Alternatives Fund

The Litman Gregory Masters Alternative Strategies Fund is a multi-strategy, multi-manager fund – it is not a fund-of-funds. Indeed, the fund’s sub-advisors operate different strategies from their public fund strategies. The fund’s objective is to generate solid, long-term absolute returns with relatively low correlation to stocks and bonds, reduced downside risk, and lower volatility than the equity market.

Finding highly-skilled, proven managers has been key to the fund’s construction. In the video above, representatives from four of the underlying managers briefly speak:

  • Jeffrey Gundlach of DoubleLine runs the fund’s Opportunistic Income sleeve, which is also referred to as Mr. Gundlach’s “best ideas, fixed-income strategy;”
  • Steven Romick of FPA leads the fund’s Contrarian strategy;
  • Matt Eagan of Loomis Sayles is in charge of the fund’s Absolute-Return Fixed-Income strategy; and
  • John Orrico of Water Island is the leader of the fund’s Arbitrage or “event-driven” strategy.

Not appearing in the video is John Burbank, who’s firm Passport Capital manages a long/short equity strategy for the fund, or members of the portfolio management team from DCI, the newest manager on the fund (effective July 10 of this year) who manages a long/short credit strategy.

Ken Gregory says that his firm isn’t trying to “check off the box for every strategy,” like some alternative funds might. Instead, the Litman Gregory approach is “outcome driven,” and so far, the outcomes have been very attractive for investors.

For more information, download a pdf copy of the fund’s Fact Sheet.