California-based financial services firm Wilshire Associates has created a pair of rules-based indices each of which delivers a benchmark for the performance of diversified liquid alternative investment strategies. Both indices include alternative mutual funds that deploy hedge fund-like strategies.
These appear to be the first indexes of their kind using alternative mutual funds which provide daily liquidity.
The Wilshire Focused Liquid Alternative Index, a subset of the broader Wilshire Liquid Alternative Index, is a narrower, more focused index and includes mutual funds that have at least an 18-month track record and a minimum of $50m in asset under management. Wilshire will layer on top of these criteria its own qualitative and quantitative factors which include screening for low correlations to equity and fixed-income markets, among other factors. The goal is to present attractive risk-adjusted performance.
The Wilshire Focused Liquid Alternative Index was specifically developed to help firms that create investable products, such as structured notes and other derivatives, as well as exchange-traded funds and exchange-traded notes.
According to Wilshire, demand for this index bubbled up from product manufacturers, including those interested in crafting swaps based upon the indexed constituent mutual funds and adding hedges around these swaps, Jason Schwarz, president of Wilshire Funds Management, told SRP.
“We do think there is a gap in the marketplace and we are here to collaborate with structured product manufacturers to create investment solutions for a broad audience,” said Schwarz.
Schwarz also added that the market is increasingly demanding outcome oriented investment products.
Currently, the narrower Focused index includes about 90 individual mutual funds, but index rules allow for that number to fluctuate. According to Wilshire data, the alternative mutual fund marketplace has grown nearly 500%, to include 450 individual funds as of June 2014, from year-end 2008.
Wilshire also has plans to develop additional indexes within this liquid alternatives investment space, although Schwarz declined to provide details.
Wilshire Associates includes two distinct business operations. Wilshire Funds Management is the investment management arm which advises on over $130bn in assets while Wilshire Analytics is the company’s technology foundation and the unit that created and maintains the DJ Wilshire 5000 index, a proxy for the broad US stockmarket, and the DJ Wilshire REIT.