Ruth Saldanha: The new buzzword in the mutual fund world over the past year has been liquid alternatives or liquid alts for short. Similar to hedge funds, they allow managers to use alternative investment tools to boost returns and lower volatility. But rather than being restricted to wealthy investors, they are open to everyone just like regular mutual funds. I'm here today with Mark Brisley, Managing Director of Dynamic Funds to discuss them. Mark, thank you so much for joining us today.
Mark Brisley : Thank you, Ruth.
Saldanha : Let's start off by talking about what are liquid alts.
Brisley : Sure. I think in the highest level, really what's going to happen with the liquid alts is you are going to have strategies that are going to be available to a much wider investing audience than what was typically found in the other side of strategies like this which were really more in a traditional hedge fund environment. And so, we are actually quite excited about that having portfolio management experience in both sides of the equation.
So, what are some of the tools that you will see in liquid alts that you would have also found able to be used in a hedge fund strategy – you have access to things like short selling, definitely an access to an active management overlay and stock selection that previously was enjoyed definitely in the mutual fund world but was also very much in use within the hedge fund environment and as well borrowing of securities and ultimately leverage which is something that was not traditionally able to used in a mutual fund environment.
Saldanha : Some investors might be put off with the risks associated with hedge funds. Can you give us some of the differences between liquid alts and hedge funds?
Brisley : Sure. I think hedge funds are often sometimes unfairly characterized as being riskier investments. And while enhanced portfolio returns are definitely a part of that equation, preservation of capital is often one of the main drivers in hedge funds. So, the difference that you are going to find in liquid alternatives versus the hedge fund market – first of all, you are going to be able to access them by a much wider range of the investing public. They are going to be more regulated. And that's important to note because they are going to exist within the framework of the mutual fund regulatory process. And so, a lot of that risk that's associated on the hedge fund side is taken out by the very nature that they are going to be in the mutual fund environment.
Ultimately as well, there is no accreditation rules. So, in a hedge fund product, you typically have to have a minimum investment threshold in order to enter the product. That's not going to be the case in this particular type of strategy.
Saldanha : A few months ago, Dynamic launched a couple of liquid alts. Let's talk about them. Let's start with the Dynamic Alpha Performance. What's the objective of that fund?
Brisley : Sure. Ultimately, the product is actually going to leverage the track record and the experience of Noah Blackstein who since 2002 has been managing a product called the Alpha Performance Fund. Alpha Performance really seeks to generate enhanced portfolio returns regardless of the market direction and ultimately manages the volatility by actively managing his long, short and cash positions.
Saldanha : The second is the Dynamic Premium Yield Plus. Tell us about that fund.
Brisley : Sure. Premium Yield Plus is being managed by our Portfolio Manager Damian Hoang. For the past five years he has been managing close to $2 billion in assets in options-based and alternative strategies. Premium Yield Plus is ultimately going to display the characteristics as well of enhanced portfolio returns but also with providing a higher yield for income but at the very same time employing a very strategic systematic downside protection mechanism within the product.
Saldanha : How have both the funds done since its launches?
Brisley : We are very pleased. We think we've come to market at the right time. The final regulatory rules around liquid alternatives are not expected to go into place until January of 2019. However, on an exemptive relief basis we applied to the regulators and I think our experience and track record helped us to get these strategies to the marketplace. They have performed very well during some pretty significant market volatility and have displayed characteristics that saw downside protection far less than the actual market. And as well, from an asset perspective, we are seeing financial advisors be able to employ these strategies within their models and also for investors that are looking for the characteristics that these products currently display.
Saldanha : Thank you so much for joining us with your perspectives, Mark.
Brisley : Thank you, Ruth.
Saldanha : For Morningstar, I'm Ruth Saldanha.
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