Morningstar Introduces New Categories for Alternatives

The new alternative categories for the broad universe of funds are: 

• Managed Futures: These funds typically take long and short positions in futures or other derivative contracts according to a trend-following or momentum strategy; and 
• Multialternative: These funds offer investors exposure to a combination of strategies like long-short equity and debt, managed futures, global macro, and convertible arbitrage, among others.  

The new alternative categories for ETFs are: 

• Volatility: These funds trade volatility as an asset class and aim to profit from turbulence in the financial markets; 
• Trading—Leveraged Commodities: These funds seek to generate a daily or weekly return that is a certain number of times larger than the return of the reference commodity index; 
• Trading—Inverse Commodities: These funds seek to generate a daily or weekly return that is a certain number of times larger than the reference commodity index but in the inverse, or opposite, direction; 
• Trading—Leveraged Debt: These funds seek to generate a daily or weekly return that is a certain number of times larger than the return of the reference fixed-income index; 
• Trading—Inverse Debt: These funds seek to generate a daily or weekly return that is a certain number of times larger than the reference fixed-income index but in the inverse, or opposite, direction; 
• Trading—Leveraged Equity: These funds seek to generate a daily or weekly return that is a certain number of times larger than the return of the reference equity index; 
• Trading—Inverse Equity: These funds seek to generate a daily or weekly return that is a certain number of times larger than the reference equity index but in the inverse, or opposite, direction; and 
• Trading—Miscellaneous: These funds seek to generate a daily or weekly return that is a certain number of times larger than the short-term returns of an index in either a positive or negative direction.  

Funds populating these new categories come primarily from Morningstar’s existing alternative categories, including Long/Short, Market Neutral, Bear Market, and Currency. Funds in the seven Trading categories will not receive a Morningstar Rating, because they are primarily designed as short-term holdings.   

The new category assignments are available in Morningstar’s Web-based products now, and Morningstar expects to roll them out in all Morningstar products in the second quarter.