The fund seeks capital appreciation with an emphasis on absolute returns, low volatility, and low correlation to the equity markets.
Diversified long/short exposure by combining strategies that provide long/short exposure to equities, fixed income, and futures. The fund is managed to maintain a consistent level of risk in the overall portfolio. This is managed by the allocation across the sub-strategies and the individual investment components.
- Exposure to three alternative strategies
- Seeks absolute returns with a targeted risk objective
- Low correlation to traditional investments
- Quantitative buy & sell discipline
- Designed to help reduce portfolio volatility
- Core holding for alternative investment allocations
Diversification Across Alternative Strategies
Arrow Alternative Solutions Fund is a mutual fund that delivers unique risk and return characteristics. The
advisor uses a systematic quantitative methodology for allocation among three alternative strategies:
hedged equities, fixed income arbitrage and managed futures. Alternative strategies have
historically exhibited relatively low correlation to traditional investments (e.g., equities & bonds).
Exposure to Long/Short Absolute Return FactorsTM
The advisor utilizes quantitative methodologies to create traditional return factors (e.g., value, size, etc.)
as a foundation for creating Absolute Return Factors. Absolute Return Factors are based on an
underlying investment rationale supported by industry practice, academic research, or both.
These factors are typically incorporated in investment strategies widely employed by hedge funds, and
are also the basis of hedge fund replication. Portfolio creation with Absolute Return Factors attempts to
protect the portfolio in environments where it traditionally decreases in value; or, put another way, to
lower the volatility that arises from market risks.
The fund's three long/short investment strategies may include, but are not limited to, the Absolute Return
Factors shown in the table below:
Non-Correlated Returns with Targeted Risk
Within the framework of modern portfolio theory the advisor will optimize the exposure to the
underlying long/short strategies to diversify the portfolio. In portfolio optimization, the advisor seeks
to build a portfolio that provides the optimal balance between risk and expected return. Below is a
description of three core long/short categories.
Risk Management Targets: Over a rolling 3-5 year time horizon, the fund targets a 7% risk level (as measured
by standard deviation), a beta and correlation to the S&P 500 of less than 0.5 with a Sharpe Ratio greater than
0.25. The advisor does not represent or guarantee that the fund will meet these goals.
Capital Preservation Tool
Like a hedge fund, the fund seeks to
deliver absolute returns--that is,
generally positive returns in any market
environment. As a result, the fund offers
the potential for increased diversification,
enhanced risk-adjusted returns and
protection against volatility. We believe
the lower volatility allows portfolio assets
to grow steadily, possibly compounding
positive returns year after year.
The portfolio exposure graph illustrates
how long and short exposure is created
relative to the fund's assets and to the
reduction of the fund's overall net
exposure. Based on its investment
methodology, the fund's net market
exposure can be expected to range from
30% to 80%. Adjustment in net market
exposure is intended help the fund produce
absolute returns in all market conditions.
Mutual Fund Structure with Hedge Fund Features
Hedge funds have long been highly regarded for their use of alternative strategies and investment
techniques. However, their structure often raises concerns for investors. The Arrow Alternative
Solutions Fund seeks to combine the features of both hedge funds and open-ended mutual funds. The
table below highlights the fund's characteristics alongside those of mutual funds and hedge funds.