Inside the Morningstar Style Box for Alternatives

We recently introduced the Morningstar Style Box for alternative funds, a new research framework for evaluating liquid alternatives investments that will be available to Morningstar Direct clients at the end of October. We first introduced the alternatives style box in our October 2016 paper, which showed how its main components of correlation and volatility can help investors quickly and intuitively gauge a fund’s diversification potential. In this follow-up report, we take a bottom-up look at the alternatives universe by placing each liquid alternative fund into one of the alternatives style box’s nine regions. We find significant diversity among alternative strategies, even among those in the same Morningstar Category, underscoring the potential importance of tools like the alternatives style box for making good comparisons and conducting thorough evaluations.

Key takeaways