Alternative Strategies Fund Q4 2019 Market Commentary

February 19, 2020 | Vanguard Perspective

Alternative Strategies Fund Q4 2019 Market Commentary

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.

Investment commentary as of December 31, 2019

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.

Quarterly performance of the fund and underlying investment strategies

This is a jellybean chart comparing the quarterly performance of the Vanguard Alternative Strategies fund (VASFX) as a whole with its six underlying investment strategies for 2019.  The underlying strategies shown are: Merger arbitrage; long/short foreign exchange; long-short equities; long-short commodities; fixed income; and long/short equity index. The chart illustrates that returns can fluctuate dramatically from quarter to quarter. The returns for fixed income strategy were 10.08% in Q1, -0.05% in Q2, -2.37% in Q3 and 5.07% in Q4. The returns for the merger arbitrage strategy were 5.82% in Q1, -2.62% in Q2, 1.01% in Q3, and 4.01% in Q4. The returns for long/short commodities strategy were 5.77% in Q1, -2.78% in Q2, 4.53% in Q3, and -4.62% in Q4. Returns for the fixed income strategy were 2.77% in Q1, 5.82% in Q2, 1.20% in Q3, and -1.88% in Q4. The returns for the long/short equity index strategy were 2.57% in Q1, -5.24% in Q2, 1.54% in Q3, and 5.43% in Q4. The returns for the long/short equity index strategy were 1.34% in Q1, 8.80% in Q2, 10.89% in Q3, and -2.15% in Q4. The fund’s overall performance fluctuated somewhat less than the individual strategies, starting at 4.71% in Q1, 0.66% in Q2, 2.84% in Q3 and 0.94% in Q4.

Past performance is no guarantee of future returns.

Sources: Vanguard as of December 31, 2019

Performance summary

  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%
Benchmark2   0.77% 5.58% 5.58% 5.58% 5.18%

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

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:

  • A Federal Reserve interest rate cut in October.
  • Yield curve normalization.
  • Strong fundamental economic measures.

Other factors that helped stabilize market concerns include:

  • De-escalating U.S.-China trade tensions.
  • Ratification of the United States-Mexico-Canada Agreement.
  • A decisive election win by the U.K. Conservative Party, paving the way for Brexit.

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.

Large-cap U.S. stocks trailed small-caps

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%).

Precious metals

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.


  • Oil advanced strongly on renewed pro-cyclical confidence.
  • Natural gas fell on oversupply due to near-record output and warmer forecasts.

U.S. dollar

With the exception of the Japanese yen, the U.S. dollar weakened against all major currencies.

Yield curves

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 3-month yield fell 26 basis points (bps) to finish the quarter at 1.54%. (A basis point is one-hundredth of a percentage point.)
  • The 6-month yield declined by 23 bps to 1.58%.
  • The 2-year mark remained mostly stable, moving down 5 bps to 1.57%.
  • The 5-year rose 15 bps to 1.69%, the 10-year was up 25 bps to 1.92%, and the 30-year increased 28 bps to 2.39%.

Fund performance

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:

  • Long/short equity index.
  • Merger arbitrage.
  • Long/short equities.
  • Long/short foreign exchange.
  • Long/short commodities.
  • Fixed income.

Three of the six strategy sleeves added to returns for the quarter:

  • The long/short equity index and long/short foreign exchange strategies performed the best.
  • The merger arbitrage sleeve also contributed positively to performance.
  • The long/short commodities sleeve was the worst performer.
  • The long/short equities and fixed income strategies also hurt performance.

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.

Long/short commodities strategy

  • In a reversal from its strong third quarter (+4.5%) showing, the long/short commodities strategy was down –4.6% for the quarter. Neither the backwardation signal nor the curve momentum signal added value during the period.

Merger arbitrage strategy

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:

  • Steadily rising equities.
  • Supportive credit markets.
  • Improving outlooks on trade conflicts.

The strategy continues to maintain a balanced portfolio in terms of sector compositions, cash versus stock splits, and the mix of domestic versus international.

Long/short equities strategy

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.

Long/short foreign exchange strategy

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 trade-weighted dollar declined 2.6%, reversing the 3.0% appreciation of the previous quarter.
  • The Norwegian krone (NOK) and the Australian dollar (AUD) marginally outperformed the euro (EUR) and the Swiss franc (CHF), all of which were up 3% to 4%.
  • The spread between the AUD and the Japanese yen (JPY) was sizable enough to contribute meaningfully to a strong quarter.

Fixed income strategy

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.

Long/short equity index 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.


  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
  • The investment strategies to be utilized by Vanguard Alternative Strategies Fund are complex and an investment in the fund may involve greater risk than investing in a traditional portfolio of stocks, bonds, and cash. There is no guarantee that the performance of Vanguard Alternative Strategies Fund will have low correlation with the returns of traditional capital markets. An investment in the fund could lose money over short, intermediate, or even long periods of time. Returns may vary substantially over time, and there is no guarantee that the fund will achieve its investment objective or that any of its investment strategies individually or collectively will succeed. The fund's strategies involve the use of leverage, so its investment program may be considered speculative and is expected to involve considerable risks. The fund could lose money at any time and may underperform the markets in which it invests during any given period, regardless of whether such markets rise or fall.
  • For more information about Vanguard funds, call 800-997-2798 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.