Trend-following has now become a well-understood alternative investment style which is viewed as favourable while risk premia has become part of investing jargon, according to Morningstar’s Sector Wrap-Up for Alternative Funds.
However, the way the strategies are adopting this trend significantly varied, the firm said.
According to Morningstar’s sector wrap-up, two strategies, including CFM Institutional Systematic Diversified and Aspect Diversified Futures, were upgraded to bronze from neutral.
Morningstar also initiated coverage of JPMorgan Global Macro Opportunities at a bronze rating and Ironbark LHP Global Long/Short at a neutral rating while dropped coverage of Ironbark Gavekal Asian Opportunities.
Also, it allocated one alternative strategy the second-highest-possible analyst rating of silver, Winton Global Alpha while further seven were rated bronze, the firm said.
At the same time, the study found that the concept of risk premia began to enter ‘common parlance in the alternatives space’ however it saw managers taking different approaches to risk premia investing as it lacked one universal definition.
According to Morningstar, the term referred to a set of strategies that offered source of systematic returns, grounded in fundamental economic principles, with three dominant rationales explaining the existence of risk premia opportunities which included behavioural biases, structural market inefficiencies, or compensation for bearing risk.