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Multialternative Funds: Best And Worst Of December

Multialternative funds averaged a 1.20% loss in December, dropping their returns for 2015 to -2.39% versus a 2015 loss of 1.79% for the Morningstar Moderate Target Risk TR USD Index (the Index). For the three years ending December 31, the category averaged annualized returns of 1.77% versus 5.60% for the Index, with a beta relative to the Index of 0.51 and a Sharpe ratio of 0.38. On a beta adjusted basis, the funds underperformed the Index with -1.01% annualized alpha over the three-year period. The top-performing multialternative funds and ETFs in December posted gains of as much as 3%, and two of the top-three performers from 2015’s final month had one-year returns of greater than 8%. But of the six funds reviewed this month – the three best and the three worst – only one from each stack launched early enough to have three-year track records, and both underperformed the category averages in terms of returns, Sharpe ratio, and volatility. Click to enlarge Top Performers in December The three best-performing multialternative mutual funds and ETFs in December were: QSPIX and EXD both generated December returns in the +3% range, with QSPIX gaining 3.01% and EXD 2.94% for the month. Both funds were similar in terms of their annual returns, too, with QSPIX gaining 8.76% in 2015 and EXD adding 8.55% for the year. But only EXD, a closed-end fund that launched in June 2010, had three-year data available: its annualized returns stood at an unappealing -1.26%, and its seemingly good-looking -0.30 beta actually resulted in losses, as is evident from the fund’s three-year alpha of +2.86%. In all EXD’s three-year Sharpe ratio was only 0.20, and its three-year standard deviation of 5.87% was the highest of all qualifying funds reviewed this month. AQR’s QSLIX rounds out December’s top three. The fund, which launched September 2014, returned +1.82% in December and +4.02% for the year. Worst Performers in December The three worst-performing multialternative mutual funds and ETFs in December were: SANAX was December’s worst-performing ’40 Act multialternative fund, returning -4.16% for the month. For the year, the fund lost 8.18%, which dropped its three-year annualized gains to just 0.74%. Through December 31, the fund had a three-year beta of 0.52, but generated alpha of -2.12% with 5.21% annualized volatility. As such, its Sharpe ratio for the period stood well below the average for its peers at 0.16. QSTAX and the Transamerica Global Multifactor Macro Fund both launched in 2015 and thus didn’t have three- or even one-year return data as of December 31 of that same year. In December they lost 4.11% and 3.96%, respectively. Past performance does not necessarily predict future results. Jason Seagraves and Meili Zeng contributed to this article.

Courage Required To Ride Out Volatile Markets

By Brian Levitt, Senior Investment Strategist As investors contend with the worst start to a year for the equity markets in recorded history, we focus on one of our favored principles of sound investing: Courage. Winston Churchill once said, “Courage is rightly esteemed to be the first of human qualities because it is the quality which guarantees all others.” Anything in life worth achieving requires consistent courage and fortitude. Investing is no different. Today’s market news and challenges, while daunting and significant, pale in comparison to events of the past such as the Great Depression, two world wars, 9/11, and the 2008 financial crisis. Every generation faces challenges that often appear both unique and overwhelming at the time but when viewed through the sobering lens of history are judged to be neither (Exhibit 1). Markets historically continue their inexorable climb. Why? Because in spite of our challenges and shortcomings, the human race is remarkably resilient and people are masterful inventors and innovators who always strive to create a better place for themselves and society at large. Financial markets have always reflected the improving human condition. Fact: Corrections Happen Often Market corrections happen fairly often, even in good years. 1 From 1981 to 2015 the S&P 500 Index experienced at least a 5% intra-year decline every year but one (1995). The average annual correction over the past 34 years has been 14.4%! In spite of these declines, equities posted positive total returns in 29 of the last 35 years, with an annualized return of more than 11%. As Exhibit 2 illustrates, volatility does not equal loss, unless of course you sell. History shows it doesn’t take very long for market corrections (declines of greater than 10% but less than 20%) to reverse and return to prior peaks. The mean time to market recovery has only been 107 days, 2 or shorter than the National Football League season, which always seems to go by way too fast (Exhibit 3). While true bear markets (declines of greater than 20%) do take longer to recover, it should still be of little consequence to long-term investors. A $10,000 investment made 50 years ago, on January 1, 1966, would be worth over $2.2 million today, even with all the corrections and bear markets of the last half-century. In the words of the Greek philosopher Plato, “Courage is knowing what not to fear.” It remains sound advice for investors, who should have the courage to know not to fear market swings. Compelling wealth management conversations is a program designed to help provide philosophical and historical context and perspective to keep investors “buckled in” and stay the course during uncertain times (and when have times not been uncertain), while providing a framework to help identify the best opportunities going forward. Click to enlarge 1 Source: Bloomberg, 12/31/15. Past performance does not guarantee future results. 2 Source: Ned Davis Research, 12/31/15. Past performance does not guarantee future results. 3 Source: Bloomberg 12/31/15. Past performance does not guarantee future results. Mutual funds are subject to market risk and volatility. Shares may gain or lose value. Carefully consider fund investment objectives, risks, charges, and expenses. Visit oppenheimerfunds.com or call your advisor for a prospectus with this and other fund information. Read it carefully before investing. OppenheimerFunds is not affiliated with Seeking Alpha. ©2016 OppenheimerFunds Distributor, Inc.

The V20 Portfolio Week #16: A Slight Rebound

The V20 portfolio is an actively managed portfolio that seeks to achieve an annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! Current Allocation *Only available to Premium Subscribers Planned Transactions *Only available to Premium Subscribers ————- The market jumped towards the end of the week. After suffering steep losses, the S&P 500 climbed back to end the week with a gain of 1.4%. The V20 Portfolio also appreciated, rising by 4.4%. Portfolio Update As volatility picks up, I made some sizable changes to the V20 Portfolio over the past couple of weeks. Since the beginning of 2016, more than a third of the capital has been shifted. However, the V20 Portfolio did not exit existing holdings or initiate any new positions this week. Today I’ll talk about one of the less discussed stocks in the V20 Portfolio. Intelsat (NYSE: I ) I’ve been doing an injustice to Intelsat by suggesting that Conn’s was the cheapest stock in the V20 Portfolio. Intelsat is currently trading at a P/E of less 2x and has a massive backlog (~$10 billion) that quadruples the annual revenue. Furthermore, EBITDA margin has been running at an absurd rate of 77%. Not only is it cheap from a quantitative perspective, its business is also highly durable. There are a limited amount of satellite slots available in the world and Intelsat holds some very valuable space real estate. A high margin business with a sustainable competitive advantage. What can go wrong? The problem is leverage. The company had $15 billion of debt at the end of the third quarter. There are two problems with leverage. For one, it magnifies losses when things cool down. This won’t be a problem for Intelsat due to its backlog. The second problem is more applicable: liquidity. When you hold bonds, you usually rely on the capital market to refinance when they mature. Given what has transpired in the junk bond market, there is significant uncertainty regarding the demand for the bonds when they mature. Of course, if bonds can’t be repaid, the company may have to issue additional equity, diluting shareholder value; or worse, as the equity may get wiped out in a restructuring. To summarize, the problem with Intelsat is not that its business is in any danger, but the concern regarding liquidity. Assuming that the credit market is rational, I believe that this junk bond “crisis” (largely caused by the collapse of the energy industry, i.e. nothing to do with Intelsat) should blow over. Looking Forward The recent rally does suggest that investors have become more bullish. Although how the market moves has nothing to do with the value of the V20 Portfolio’s holdings, a more bullish sentiment will nevertheless be beneficial for all investors who are long, including us. In any case, market volatility has returned, and I expect the V20 Portfolio to be more volatile in the coming months as bulls and bears battle it out in a war that does not particularly interest us. Performance Since Inception Click to enlarge