February 19, 2020 | Vanguard Perspective
In November 2019, Vanguard broadened investor access to its Alternative Strategies Fund (VASFX), so more investors can pursue meaningful diversification in a low-cost, high quality way.
Vanguard Alternative Strategies Fund returned 0.94% for the quarter, marking a decline from the previous quarter, yet outperforming its benchmark, the Spliced FTSE 3-Month U.S. Treasury Bill Index (+0.77%).
You can view a comparison chart of the fund's quarterly performance and underlying investment strategies for 2019 below, or see three-year performance data by downloading the full report.
|Periods ended December 31, 2019|
|Expense ratio1||Quarter-end||Year to date||One year||Three years||Since inception (8/11/2015)|
|Alternative Strategies Fund||0.66%||0.94%||9.40%||9.40%||3.94%||3.99%|
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so investors’ shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.
The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Figures for periods of less than one year are cumulative returns. All other figures represent average annual returns. Performance figures include the reinvestment of all dividends and any capital gains distributions. All returns are net of expenses.
1 As of February 2, 2019.
2 FTSE 3-Month US T-Bill Index +4% through October 31, 2019; FTSE 3-Month Treasury Bill Index thereafter.
U.S. equities rose strongly and consistently throughout the quarter ended December 31, supported by:
Other factors that helped stabilize market concerns include:
The Russell 3000 Index finished the quarter up 9.10%, as the volatility characterizing the prior two quarters subsided. Growth-centric sectors, led by information technology and health care, benefited from investor exuberance; defensive sectors, in particular utilities and real estate, suffered.
In a reversal of a long-standing trend, large-capitalization U.S. stocks, as measured by the Russell 1000 Index (+9.04%), trailed small-caps, as measured by the Russell 2000 Index (+9.94%).
Meanwhile, growth continued its dominance over value, with the Russell 3000 Growth Index (+10.67%) significantly leading the Russell 3000 Value Index (+7.48%).
All precious metals advanced, with platinum leading the pack. Industrial metals offered a mixed bag as copper and aluminum advanced even as zinc and nickel declined, with nickel giving up much of its third-quarter gains.
With the exception of the Japanese yen, the U.S. dollar weakened against all major currencies.
The U.S. Treasury yield curve normalized, with the short end of the curve declining and the intermediate- to long-term portion shifting upward.
The Alternative Strategies Fund is an absolute-return fund. It seeks returns that have low correlations with the stock and bond markets and are less volatile than the overall stock market. The advisor uses six investment strategies:
Three of the six strategy sleeves added to returns for the quarter:
For the 12 months ended December 31, the fund (+9.40%) handily outperformed its benchmark index (+5.58%). All six strategies contributed positively, with long/short equities leading the group by a wide margin, followed by the long/short foreign exchange and merger arbitrage sleeves.
The merger arbitrage strategy returned 4.0% on the back of marginally narrowing deal spreads and upside expectations in some deals. Factors contributing to the narrowing spreads include:
The strategy continues to maintain a balanced portfolio in terms of sector compositions, cash versus stock splits, and the mix of domestic versus international.
Following a very strong third quarter, the long/short equities strategy suffered a –2.2% return in the fourth quarter. As investor sentiment began to improve and the market started to pivot toward cyclical stocks, our long positions, sourced mostly from the defensive sectors, underperformed. The steepening yield curve also negatively affected these stocks, which was partially offset by an overweight position in financials.
The long/short foreign exchange strategy delivered strong returns in the fourth quarter, contributing 5.1% to returns, as the dollar experienced broad depreciation against most other currencies. For example:
The fixed income strategy experienced a –1.9% return in the fourth quarter as the yield curve steepened. The 2-year treasury yield declined 5 basis points, while the 5- and 10-year Treasury yields increased 15 and 25 basis points, respectively, ultimately resulting in a steeper curve.
We believe that the normalizing of the term premium, currently low by a historical perspective, will present better return opportunities for this strategy.
The long/short equity index strategy, constructed to harvest rate-adjusted dividend differentials across a broad set of global index futures, delivered a strong 5.4% fourth-quarter return.
Our long positions in the Hang Seng, IBEX, and Taiwan indexes added the most value, while detractors from performance included short positions in the Korea SE Kospi, Singapore, and DAX indexes.