Dreyfus, part of BNY Mellon Asset Management, has launched Dynamic Alternatives Fund, a new mutual fund designed to provide investors with exposure to a range of hedge fund returns within the relatively low cost and liquid structure of a mutual fund.
The fund seeks total return (consisting of capital appreciation and income) that approximates or exceeds the total return of a diversified portfolio of hedge funds included in the HFRI Fund Weighted Composite Index (HFRI Index).
To pursue its goal, the fund, which is subadvised by Mellon Capital Management, an affiliate of Dreyfus, follows a hedge fund beta replication strategy designed to provide investment exposure to a diversified portfolio of hedge funds included in the HFRI Index, combined with a managed futures replication strategy designed to mitigate downside risks.
Using proprietary statistical models, the portfolio manager seeks to estimate the market exposures (or betas) that drive the aggregate returns of the hedge funds and certain managed futures included in the HFRI Index and then implement a strategy that relies extensively on derivative instruments in seeking to replicate those exposures.
To determine the allocation of fund assets between the hedge fund beta replication strategy and managed futures replication strategy, the portfolio managers use a proprietary macro risk allocation model. However, the fund does not make direct investments in hedge funds.
Jon Baum, chairman and CEO of The Dreyfus, said: “Dreyfus Dynamic Alternatives Fund provides exposure to hedge fund betas while seeking to mitigate downside risks during volatile periods and at the same time maintains the ease of access and liquidity of a mutual fund. The strategy seeks to replicate the HFRI returns using relatively liquid instruments and tactically allocate to managed futures in volatile markets.
“For investors seeking alternatives for diversifying their holdings in this challenging market environment, we believe that Dreyfus Dynamic Alternatives Fund can be part of an overall diversified portfolio.”