Alts Week In Review

Alternative investments (“alts”) have spent years in the wilderness but now, with the plunge in equity values, advisors are giving nontraditional exposures a second look.

Still, the past five trading days have been good for equities. For the trading week ending April 8, the S&P 500 gained 7.71 percent, chipping its year-to-date loss down to 17.19 percent. Just two alt plays outdid the blue-chip index for the week: energy limited partnerships, personified by the Alerian Master Limited Partnership ETF (NYSE Arca: AMLP), and convertible securities, benchmarked by the SPDR Bloomberg Barclays Convertible Securities ETF (NYSE Arca: CWB).

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AMLP gained more than 10 percent for the week, outstripping the S&P 500’s advance by more than two percentage points. AMLP tracks a cap-weighted index of master limited partnerships (MLPs) focused on processing and transportation of petroleum products and natural gas. The fund’s emphasis on “midstream” operations provides some insulation from commodity price volatility, but its revenue stream can vary significantly with changes in transport volume.

Nearly $70 million flowed out of the fund on a net basis over the past five trading days, about 1.6 percent of AMLP’s asset base. For the year, the fund’s witnessed a net outflow exceeding $375 million.

Because of AMLP’s volatility, its value as a portfolio diversifier is rather limited. This year, a 10 percent allocation to AMLP within a balanced portfolio would have yielded a 1.11 diversification ratio.

As modest as AMLP’s diversification benefit is, it’s still better than the 1.04 ratio earned by the second-place CWB fund. CWB attempts to replicate the performance of a market-cap weighted index of U.S. convertible securities with an outstanding issue size greater than $350 million.

CWB’s net outflow for the week, 1.3 percent of its assets, was more modest than AMLP’s. This year’s seepage has totaled $434 million for the convertibles portfolio.

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Disclosure: None.

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