Wilshire Associates Incorporated has launched two indices designed to provide insight into an investment category that is by nature very difficult to benchmark.
The Wilshire Liquid Alternative Index? aims to deliver a precise, broad market measure for the performance of diversified liquid alternative investment strategies that are implemented in mutual fund structures.
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The Wilshire Focused Liquid Alternative Index? is an optimized subset of the broad market index that embeds intelligent screening criteria and is designed to help firms build investable products, such as ETFs.
Constituent fund inclusion for the Focused Liquid Alternative Index is based on Wilshire Funds Management proprietary research methodology, which can be further customized to meet a variety of unique specifications.
The new indices leverage the intellectual capital of two distinct Wilshire business units: Wilshire Funds Management and Wilshire Analytics. Wilshire Funds Management, the investment management arm of the firm that works with financial intermediaries globally, advises on over $130 billion in assets, including traditional and alternative investment strategies.
Wilshire Analytics is the technology foundation of Wilshire and creator of the Wilshire 5000, the most comprehensive measure of the U.S. stock market.
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By GlobalDataPreviously only accessible through private investments in hedge funds, alternative investment strategies implemented through more liquid structures have proliferated in the aftermath of the global financial crisis as investors have sought enhanced diversification and downside protection with a heightened emphasis on liquidity and transparency.
Wilshire estimates that the number of liquid alternatives strategies available in the marketplace has increased nearly 500%, from approximately 75 investable options at the end of 2008 to 450 mutual fund products as of June 2014. Evaluating the performance of these liquid alternative funds, however, has proven challenging.
"Alternative investments are inherently designed to behave differently than traditional asset classes, so comparing them to well-established, long-only indices is counterintuitive," said Jason Schwarz, president of Wilshire Funds Management.
"Hedge fund indices are not a suitable proxy either, as their constituents may access more illiquid investments or deploy greater levels of leverage than is permissible under the regulations of the Investment Company Act of 1940.
"We have seen firsthand the surge in demand for diversifying liquid alternative strategies among the clients we advise and believe that the Wilshire Liquid Alternative Index is a powerful tool to help investors understand how these difficult-to-track mutual fund strategies are actually performing," Schwarz added.
The index draws upon the Wilshire Manager Research group’s in-depth analysis and categorization of all available liquid alternative mutual funds in the marketplace. Each liquid alternative mutual fund is classified into one of the following broad categories: equity hedge, event driven, global macro, relative value, or multi-strategy. The Wilshire Liquid Alternative Index methodology combines these strategy groups to ensure both style diversification and market representation.
Constituent mutual funds for the Wilshire Focused Liquid Alternative Index are screened based on additional criteria, including longevity of track record, correlation to equities and fixed income, and assets under management. Returns for the Wilshire Liquid Alternative Index are available on a daily basis from December 31, 2013 and on a monthly basis from December 31, 1999.
"Developing an appropriate index for a quickly evolving market demands finding the right partner to lend market expertise, as well as distribution capabilities," said Cecilia Loo, president of Wilshire Analytics.
"We are fortunate to have this expertise under the same roof, within Wilshire Funds Management. As an early innovator in the application of investment analytics and research, Wilshire is uniquely positioned to respond nimbly to what we perceive to be a clear gap in the marketplace," added Loo.
