In the third quarter, Alternative Investments ("Alternatives") were a mixed bag with regards to performance. Six of eleven categories had positive returns with the remaining five posting negative returns. The strongest performing categories were primarily focused in the credit markets and the higher equity beta related strategies (hedged equity, event driven). Tangible assets (commodities and real estate) along with short bias equity funds ended sharply in the red, a strong reversal from the 2nd quarter performance. The Managed Futures category continued its malaise as rates remained very low and sustained trends absent. Short bias strategies, which had been one of the top performers earlier in the year, suffered as equity markets rallied, volatility fell and the U.S. markets shrugged off international rumblings with aplomb. Framed another way, the rank order of 3rd quarter returns was very closely aligned with rank order correlation of hedge fund categories to the S&P 500 Index; the higher the correlation, the higher the returns. Managed futures, commodities, and global macro have historically shown low correlations to stocks and bonds. Based upon monthly correlations over the past two years, that relationship is seemingly intact. Other Alternatives categories, while having higher correlations with equities, generally do so with considerably less volatility.
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