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Liquid alternatives struggle with survival across market cycles

Over the past 20 years, about 2,100 liquid alternative funds have shut down, leaving roughly 1,536 still active.

Reported · Written up by our desk · Fund Industry

ETF Trends says many liquid alternative funds are proving unable to stay in investors’ portfolios through a full market cycle, with strategies adopted during crises and then abandoned during recoveries.

The outlet attributes the category’s “lifecycle problem” to buy and hold behavior that breaks down after markets improve, contributing to the closure of about 2,100 liquid alternative funds over the past 20 years, even as around 1,536 funds remain active today.

ETF Trends argues that allocators should focus less on choosing among liquid alternatives and more on whether a hedged equity approach, meant to be held through the full cycle, can deliver persistent equity participation in bull markets while actively managing drawdown risk in bear markets.

In that context, the outlet highlights Swan’s Defined Risk Strategy, which it describes as using actively managed put options to help flatten losses in sharply down markets without capping gains during bull markets.

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