Aim is to create relevant benchmarks – and maybe a product.
Wilshire Associates Inc. has expanded its footprint in the liquid alternatives indexing market by launching five targeted subindexes to go along with the broader liquid alts index it launched in August.
The subcategories, which were announced Wednesday, include equity hedge, event driven, global macro, relative value and multi-strategy. The new indexes will comprise the Wilshire Liquid Alternative Index.
Jason Schwarz, president of Wilshire Funds Management, said a key driver in the development of the indexes is the wide disparity and lack of common framework when benchmarking liquid alternative investment strategies.
Since 2008, the number of registered mutual funds employing alternative strategies has more than doubled to more than 470 funds, and assets in the liquid-alts category have more than quadrupled over that same period to more than $175 billion, according to Morningstar Inc.
A review of mutual fund prospectuses for the category found that the benchmarks most often used include hedge fund indexes, cash and traditional market indexes, Mr. Schwarz said.
“Each of these approaches falls short of providing a relevant performance metric for liquid alternative investment strategies,” he said. “When we look at the benchmarks being used today by liquid alternative managers, they're all over the map.”
While the targeted indexes will likely help financial advisers better evaluate funds and strategies in the fast-growing liquid alts space, the ultimate object for a company such as Wilshire might be to license the index to a firm that could make it investible.
On that topic, Mr. Schwarz would only acknowledge that “this is an area where product development is happening very quickly.”
Wilshire's original liquid alternatives index launch in August was preceded in 2013 by a few indexes created by Liquid Alternative Investments Co., whose company founder, Ezra Zask, acknowledged that licensing agreements are a consideration.
Todd Rosenbluth, senior fund analyst at S&P Capital IQ, said he believes that there may be challenges capturing a liquid alt index inside something investible like an exchange-traded fund.
“That would involve taking something that is typically an active strategy and adding a passive override,” he said. “And these kinds of mutual funds tend to be expensive, which might not appeal to a lot of ETF investors.”
Even if it's too early to talk about an investible version of the new indexes, at least financial advisers will be getting a better handle on evaluating liquid alt funds.
