All or Nothing Analysis

Yesterday I received an email that read, “If you are looking for alternative sources of stable income with a demonstrated ability to make money in a rising rate environment….” For this reason, most get trashed before opening, but once in a while, I’ll click to see what’s out there. Today, I received one from a multi-strategy fund of funds with pretty underwhelming performance, so I opened the fact sheet to see what was going on.

I’m not from the hedge fund world, but I saw a lot of brand name managers in here, ones that even I recognized. The one pager provided provided monthly returns, so I pulled them into excel to see if I could figure out why something that has done so lousy has $5 billion in assets. Since inception, this strategy has severely lagged both the S&P 500 and a simple 60/40 portfolio.

But I realized I was unfairly doing what everybody else does, which is comparing apples with butterflies. What does a multi-strategy fund have to do with stocks or bonds? I fell prey to the old all or nothing analysis. The monthly returns below, with a 0.09 correlation, show that these strategies might actually, wait for it, complement one another.

Adding a 20% allocation to this multi-strategy fund would have improved the risk-adjusted returns.

It probably wouldn’t have made a huge difference one way or the other, but adding this to a core holding certainly makes more sense than comparing it to that core holding. The table below shows the risk and return profile when you combine the fund with a sixty forty portfolio. Lower returns, but way less volatility, and a lower drawdown. By the way, the max drawdown for a sixty forty portfolio since the end of 2013 is less than 5% which is incredible, and for a different post.

Investing in this type of strategy is not something I would choose to do with my money, but I understand why others are making that choice, especially if this remains as uncorrelated to stocks and bonds when they’re falling as it has when they’re rising.


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.