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Throughout history, portfolio managers have sought a non-correlated asset class as a defensive holding to offset the volatility of the stock market.  Over the years they’ve tried value stocks, bonds, and internationals in search of their elusive objective.  None has been satisfactory, as asset classes have become more and more correlated.

Instead of looking solely to asset classes, hedge fund operators as far back as the 1970s turned to non-correlated strategies.  Arbitrage, market neutral and long/short strategies have all demonstrated a long history of not following the stock market’s often violent gyrations.

But hedge funds are only for the wealthy.  And most pursue just a single strategy, when investors have learned the hard and costly lesson that no single strategy works all of the time.

In 2004, Flexible Plan Investments began to offer a better solution – Select Alternatives.

Select Alternatives chooses from over-the-counter, open-ended, mutual funds (run by top hedge fund managers) from all categories of the S&P Hedge Fund Index, including: Market Neutral, Long/Short Equity, Currencies, Merger Arbitrage, Relative Value Arbitrage, Global Macro, Commodities/Hard Assets, Sector Equity, Multi-Strategy, and Distressed Securities.

Select Alternatives uses its proprietary Evolution ranking software to select only those funds representing strategies that are working in the present market environment.  If the dollar is strong, for example, there’s no reason to buy currency funds.  Similarly, if money is tight and merger and acquisitions are faltering, why turn to merger arbitrage funds for stock market protection?  Instead, we want to be invested in the strategies that are providing protection and that’s just what the proprietary Evolution ranking software is designed to find. 

Using our extensively tested Evolution methodology, Select Alternatives is able to trade in investments in the leading hedge fund “categories.” A portion of the strategy will be reallocated monthly as market conditions change. If all the funds are under-performing, Select Alternatives can move into money market funds, however, large cash positions are rare as most of these funds exhibit very low correlation to both the equity and bond markets.

Here’s a chart drawn from our Select Alternatives Strategic Solutions research report showing the strategy’s hypothetical performance during the 2000-2002 bear markets.  Select Alternatives deftly avoided the devastating bear market, not by sitting in cash or bonds, but rather by using investments such as commodities and currencies, both of which tend to move independently of US equity markets. Also, note that, while there is always downside risk in any investment, Select Alternatives is able to capture the upside as well.

select alternatives

The hypothetical report looks remarkably similar to the strategy’s actual performance over the last couple of years of rising and falling stock markets.  The strategy kept pace with the stock index while it was rising, but Select Alternatives continued to grow in value when stocks topped out and returned to breakeven.

select alternatives

Disclosure

Combining the diversification and liquidity of mutual funds with investments traditionally available only to hedge funds, Select Alternatives is the strategy for those investors seeking low correlation to the market, rising interest rate/inflation protection and significant upside potential.

Because Select Alternatives is offered on an independent trust company platform it can easily become the alternatives portion of any investment portfolio.  We recommend a 20% position.   We’ve followed our own advice and incorporated it into our Lifetime Evolution and Next Generation suitability-based strategies.

Select Alternatives is available at Strategic Solutions.  A comparable non-correlated strategy, Bear Necessities, is available on select variable annuity platforms. In October 2008 we introduced a mutual fund  version (Alternative Investment Fund) using ETFs as well as open-ended mutual funds. See Quantified Funds.

PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Inherent in any investment is the potential for loss as well as profit. A list of all recommendations made within the immediately preceding twelve months is available upon written request. Information used and cited is from sources believed to be reliable but Flexible Plan cannot guarantee its accuracy.

 
It’s Better Than A Hedge Fund

Unlike conventional hedge funds, Select Alternatives:

  • Does not require an investor to be "accredited"
  • Is fully transparent — fund positions are posted on our website
  • Does not charge “performance” fees
  • Does not have "lockout" periods — you are able to access your funds anytime
  • Does not invest in illiquid securities, but rather mutual funds.*
  • Click here to request more information

*Many of these funds have redemption fees if sold too early, so investors should check with their financial advisers before selling out of a position.

OnTarget Strategies

Contact Information:
Ph: 248-642-6640
Outside Metro Detroit:
800-347-3539
Fax: 248-642-6741

Strategic Solutions

Wolf Pack Advisors

Market Leaders

Lifetime Evolution

Next Generation Asset Allocation

Select Alternatives

Quantified Funds

401(k) Retirement Plans

Disclosures

  
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