FAAAX
K2 Alternative Strategies-A
Diverse Strategies for Growth
K2 Alternative Strategies-A (FAAAX) is designed to provide capital appreciation with lower volatility compared to the broad equity markets. The fund achieves this by allocating its assets across multiple non-traditional or alternative strategies, including Long Short Equity, Relative Value, Event Driven, and Global Macro. This diversified approach allows the fund to tap into various market opportunities and hedge against potential downturns, making it an attractive option for investors seeking growth with a reduced risk profile. Managed by Franklin Templeton Investments, FAAAX leverages the expertise of seasoned professionals to navigate complex market environments.
At A Glance
Executive Summary
FAAAX offers diverse alternative strategies with a focus on growth and lower volatility, but has a high expense ratio and underperforms its benchmark.
Diversified alternative strategies for growth Lower volatility compared to equity markets Managed by Franklin Templeton Investments
High expense ratio of 2.44% Underperformance compared to benchmark Low yield of 0.41%
Performance Analysis: A Mixed Bag
While FAAAX aims for growth with lower volatility, its performance has been mixed. Over the past year, the fund has delivered a return of 12.33%, which is commendable. However, when compared to its benchmark, the MSCI ACWI DivAdj Idx, which returned 30.11% over the same period, FAAAX falls short. The fund’s five-year annualized return stands at 2.67%, and since inception, it has achieved a modest 3.04%. These figures suggest that while FAAAX provides some level of growth, it may not be the best performer in its category, especially when considering its high expense ratio of 2.44%.
Risk Metrics: Navigating Volatility
FAAAX is structured to offer lower volatility, as evidenced by its risk metrics. The fund has a beta of 0.27, indicating lower sensitivity to market movements compared to its benchmark. However, the fund’s alpha is -17.81%, suggesting it has underperformed relative to the benchmark on a risk-adjusted basis. The Sharpe Ratio of -5.30 and Treynor Ratio of -65.07 further highlight the challenges FAAAX faces in delivering risk-adjusted returns. Despite these figures, the fund’s standard deviation of 0.97% and downside risk (UI) of 0.58 indicate a relatively stable performance, which may appeal to risk-averse investors.
Portfolio Composition: A Focus on Cash and Health Care
The portfolio composition of FAAAX reveals a significant allocation to cash, which constitutes 58.92% of its assets. This high cash position provides liquidity and flexibility to capitalize on market opportunities. Additionally, the fund has a notable allocation to the health care sector, which makes up 54.65% of its sector allocation. This focus on health care could be a strategic move to leverage the sector’s growth potential and defensive characteristics. Other sectors, such as utilities and industrials, also feature prominently, providing a balanced exposure to various economic segments.
Comparative Analysis: Standing Against Peers
When compared to similar funds, FAAAX presents a unique profile. Its high expense ratio of 2.44% is a notable drawback, especially when compared to peers like PACE Alternative Strategies-A (PASIX) and Principal Global Multi-Strategy-A (PMSAX), which have significantly lower expense ratios. Additionally, FAAAX’s yield of 0.41% is lower than that of its peers, such as First Trust Multi-Strategy-A (FTMAX), which offers a yield of 5.75%. Despite these challenges, FAAAX’s diversified strategy and focus on lower volatility may still appeal to investors who prioritize risk management over high returns.
Investor Suitability: Who Should Consider FAAAX?
FAAAX is best suited for investors who are looking for growth opportunities with a focus on risk management. Its diversified approach across multiple alternative strategies makes it an ideal choice for those who wish to hedge against market volatility while seeking capital appreciation. However, potential investors should be mindful of the fund’s high expense ratio and its underperformance relative to the benchmark. Those who prioritize low-cost investments or high yields may need to consider other options. Nonetheless, FAAAX’s emphasis on lower volatility and its strategic sector allocations make it a viable option for risk-averse investors.
Expense Ratio: A Costly Consideration
One of the most significant considerations for potential investors in FAAAX is its expense ratio, which stands at 2.44%. This is relatively high compared to other funds in the multistrategy category. High expenses can erode returns over time, making it crucial for investors to weigh the cost against the potential benefits of the fund’s diversified strategies. While FAAAX offers a unique approach to growth with lower volatility, the high expense ratio may deter cost-conscious investors. It is essential for investors to assess whether the fund’s performance and risk management align with their investment goals to justify the cost.
Conclusion: Balancing Growth and Risk
In conclusion, K2 Alternative Strategies-A (FAAAX) offers a compelling mix of growth potential and risk management through its diversified alternative strategies. While the fund provides lower volatility and a strategic focus on sectors like health care, its high expense ratio and underperformance relative to its benchmark are critical factors to consider. FAAAX is particularly suitable for risk-averse investors who value stability and are willing to accept moderate returns in exchange for reduced volatility. As with any investment, potential investors should carefully evaluate their risk tolerance and investment objectives before committing to FAAAX.
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Futher Reading
https://finance.yahoo.com/quote/FAAAX/”>Yahoo: K2 Alternative Strategies-A
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