November 25, 2019 | By: Sound Choices

Liquid Alternatives

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Liquid alternative funds allow investors to access alternative assets and strategies through mutual funds or ETFs, combining many of the benefits of alternatives with the daily liquidity (i.e., ability to buy and sell) retail investors desire.

On January 3, 2019, the Canadian Securities Administrators announced an expansion of the regulatory framework permitting the offering of “alternative mutual funds”, also known as “liquid alt funds” or “liquid alts”, to all Canadian investors.


 

A brief history

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Source: AGF Investments Inc.

Liquid alt funds vs traditional mutual funds & ETFs

In general, liquid alt funds have greater flexibility than traditional mutual funds and ETFs.

Fewer restrictions re securities

There are fewer restrictions on the types of assets they can hold. Liquid alt funds may invest a greater portion of assets in alternative asset classes such as physical commodities or utilize alternative strategies such as long/short or managed futures, not generally permitted in traditional mutual funds or ETFs.

There can also be a greater concentration to any one security issuer.

Liquid alt funds are also permitted to allocate assets to other alternative mutual funds or non-redeemable funds.

More flexibility re leverage

There is also more flexibility around leverage, borrowing cash, shorting without the requirement of cash cover, and using derivatives for hedging and non-hedging purposes. In general:

  • Hedging refers to the use of derivatives to ‘hedge’ or neutralize exposure. Using currency forward contracts to neutralize currency exposure is a common application of ‘hedging’.
  • Non-hedging purposes are those instances where derivatives are used for speculative purposes or to gain exposure to an area of the market.

The Canadian Liquid Alt Market – By the numbers

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Source: Morningstar Direct, as at June 2019.
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Source: Morningstar Direct, as at June 2019.

To learn more about alternative investments, visit agf.com/alternative or contact your financial advisor.


 

The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here.

The contents are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

AGF Management Limited (“AGF”), a Canadian reporting issuer, is an independent firm composed of wholly owned globally diverse asset management firms. AGF’s investment management subsidiaries include AGF Investments Inc. (“AGFI”), AGF Investments America Inc. (“AGFA”), Highstreet Asset Management Inc. (“Highstreet”), AGF Investments LLC (formerly FFCM LLC) (“AGFUS”), AGF International Advisors Company Limited (“AGFIA”), AGF Asset Management (Asia) Limited (“AGF AM Asia”), Doherty & Associates Ltd. (“Doherty”) and Cypress Capital Management Ltd. (“CCM”). AGFI, Highstreet, Doherty and Cypress are registered as portfolio managers across various Canadian securities commissions, in addition to other Canadian registrations. AGFA and AGFUS are U.S. registered investment advisers. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. AGF investment management subsidiaries manage a variety of mandates composed of equity, fixed income and balanced assets.

 

TM The ‘AGF’ logo and ® ‘Sound Choices’ are registered trademarks of AGF Management Limited and used under licence.
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