A REVIEW OF U.S. ALTERNATIVE CREDIT FUNDS: MARCH 2013

This Lipper fund classification as a whole made mid-single-digit returns on a cumulative basis during the past 12-month and 3-year periods. The average nonrisk-adjusted cumulative return for the last 12 months for the 21 distinct funds having at least 12 months of history was 1.60%, while the cumulative nonrisk-adjusted return for the last 3 years for the 13 funds having at least 3 years of history was 9.90%.

Of the 13 funds with at least 3 years of history, 6 funds had the necessary risk-adjusted return to start to minimize equity volatility; 3 of these funds are noted below. Those six funds and three more had the potential to dampen the volatility of commodity holdings. (We base our judgment on the Sharpe and Sortino ratios of the alternative credit funds compared to the long-only equity proxy–the S&P 500 index–and the long-only commodity proxy–the TR/J CRB Commodity index.)Three of the top funds and their profiles:

FPA New Income Fund

The fund seeks long-term growth of capital and income. Its methodology entails the disciplined selection of securities to maximize total return through cautious, low-risk emphasis on short to intermediate maturities of high quality.

Metropolitan West Strategic Income Fund

The fund seeks to maximize long-term total return without tracking any particular market or index. The fund seeks to provide absolute (positive) returns in all markets by employing a strategy intended to produce high income, while exploiting disparities or inefficiencies in the markets.

Blackrock Strategic Income Opportunities Fund

The fund seeks total return consistent with the preservation of capital. The fund invests opportunistically across the spectrum of fixed income sectors and securities. Allocations to sectors are unconstrained, and the fund may invest in noninvestment-grade, nondollar-denominated, and emerging market securities.