AlphaCore mutual fund debut rides a long track record

Putting past performance in perspective

Oct 31, 2016 @ 12:01 am

By Jeff Benjamin

Alternative investments shop AlphaCore Capital has made its mutual fund debut with an impressive five-and-a-half-year track record for a fund that technically has a history of just a few weeks, and only about $4 million in seed capital.

Despite taking over as subadviser from an abandoned fund with zero assets to launch the AlphaCore Absolute Institutional Fund (GDAMX), the asset manager with nearly $100 million in separate account assets will be benefiting from a track record and five-star rating from Morningstar.

“The irony is, you have to use the track record; you don't have a choice,” said Dick Pfister, founder and president of AlphaCore.

Mr. Pfister said he opted to become a subadviser to an empty, but still registered fund distributed by Northern Lights, as a faster and less expensive way to enter the mutual fund space.

AlphaCore already manages three separate account strategies that rely heavily on alternative investments and range from conservative to aggressive.

What could appear to some as a slight of hand regarding the track record, is completely legitimate and not as uncommon as one might assume.

Morningstar analyst Gretchen Rupp acknowledged that potential investors and advisers could easily miss the nuances of having a new subadviser take over an empty fund, but said it's no different than any other portfolio manager change.

“It could be deceiving if they completely changed the process, but that's also true even if there are manager changes within the same fund company,” she said. “It's not as uncommon as you might think, because firms switch out subadvisers regularly, and the track record remains. That's why it's always important to research what you're buying, because track records should be considered from the point of manager change.”

In the case of AlphaCore, the multialternative strategy has an 18-month history as a separate account. This year through September, strategy gained 1.37%, which compares to a decline of 48 basis points for the Morningstar multialternative category.

However, as previously subadvised and marketed under the name Giralda Fund, the fund was categorized as long-short equity, which is still in the alternative space but is different from multialternative.

The long-short equity category averaged a 1.07% decline this year through September.

Being compared to long-short equity could further boost the AlphaCore profile by comparison, because Ms. Rupp said it can take a couple of years' worth of performance before the fund is moved to the multialternative category.

However, she added, in cases where there is significant strategy change Morningstar can assign funds to a different category ahead of schedule.

“This just goes to show that you have to look beyond just the track record,” Ms. Rupp said. “Don't just buy based on star ratings alone, you have to look at who has been managing the money and for how long.”

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, said AlphaCore adopting a track record that was established prior to it taking over management is no different than an index fund changing benchmarks.

He cited the decision last December by PowerShares to change the indexes being tracked on two ETFs from benchmarks based on high market beta to momentum.

In this case, the fund names as well as the ticker symbols were changed, but the track records prior to the change, dating back to 2012, stayed with the new strategies.

The PowerShares S&P International Developed High Beta Portfolio (IDHB) became the PowerShares S&P International Developed Momentum Portfolio (IDMO).

And the PowerShares Emerging Markets High Beta Portfolio (EEHB) became PowerShares Emerging Market Momentum Portfolio (EEMO).

“This is a perfect example of something that could go wrong when analyzing funds,” Mr. Rosenbluth said. “We're talking about track records that are not relevant to the funds, and it reinforces that when choosing a fund based on a track record, you have to make the assumption that nothing has changed in the portfolio or anything tied to the portfolio.”

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