Asset class: Alternatives

Alternatives: Categories, Focuses, and Niches

The fund in the Alternatives asset class may hold any type of asset. Funds in this space must distinguish themselves from single asset-class funds via any of the following methods:

- Indicating in its name that it follows a common hedge fund strategy, such as absolute return, event-driven, long/short, market neutral, and multi-strategy.

- Investing in an asset type with a distinctly different economic exposure than any of the primary asset classes, such as interest rate spreads.

- Providing returns tied directly to asset volatility.

The fund in the Alternatives asset class may hold any type of asset.

Category

The Category within Alternatives identifies the strategy or tactic that a fund claims to deliver. The two Category descriptors for Alternatives are Hedge fund strategies and Tactical tools.

Hedge fund strategies funds must satisfy one of the following conditions:

• the fund’s name contains a clear reference to a common hedge fund strategy.
• The fund’s name contains a possible reference to a hedge fund strategy that is supported by a specific hedge fund strategy in prospectus text.

Tactical tools must satisfy one of the following conditions:

• the fund must provide returns derived from the volatility rather than the asset's price. The asset is typically an equity index.
• the fund must invest in an asset type with a distinctly different economic exposure than that of any of the primary asset classes.

Focus

Within Alternatives, the purpose of Focus is to specify the broad investment strategy the fund is designed to track or employ.

The Focus designators and their definitions for Hedge fund strategies are:

• Global macro – the fund pursues its strategy by investing in any asset class or sub-asset class. The fund does not have a mandate that requires it to maintain any degree of exposure to a particular broad market at any given time.
• Long/Short – the fund has a mandate to hold long and/or short positions within an asset class or in multiple asset classes.
• Multi-strategy – the fund employs a combination of different hedge fund strategies such as event-driven, arbitrage, long/short, and market neutral.

The Focus designators and their definitions for Tactical tools are:

• Volatility – the fund provides returns based on the volatility of asset prices rather than the prices themselves. The asset is typically an equity index, and exposure is typically accessed via volatility-linked derivatives. The fund may also hold other assets, provided the assets are of the same asset class whose volatility serves as the underlying asset of the derivatives position.
• Spreads – the fund provides long/short exposure to a specialty asset that does not fit in any primary asset class and, therefore, does not belong in the Long/Short niche of Hedge fund strategies.

Niche

The function of Niche within Alternatives is to convey the fund’s specific investment strategy.

Global macro strategies:

• Managed futures
• Risk parity
• Risk premia
• Global macro

Long/Short strategies:

• Event-driven
• b. Long/Short
• Market neutral
• Merger arbitrage

Multi-strategy:

• Absolute Return
• Multi-strategy

Volatility:

• The Niche must describe the tenor of the exposure and the underlying securities whose volatility is being tracked.

Spreads:

• The Niche describes the specialty asset upon which the long-short spread is based.