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FINRA Cautions Investors: Alternative Funds Are Not Typical Mutual Funds

By George Miller of Shustak Reynolds & Partners, P.C. posted on Tuesday, June 11, 2013.

In early June 2013, FINRA issued its latest “investor alert” warning the public about increasingly-popular alternative mutual funds. According to FINRA, alternative mutual funds–sometimes referred to as “alt funds”–are publicly offered, SEC-registered funds that hold more non-traditional assets and employ more complex trading strategies than traditional mutual funds. Some of these funds may be unsuitable for investors who typically invest in more traditional mutual funds.

While traditional funds typically hold investments in stocks, bonds and cash, alt funds may invest in highly leveraged loans, start-up companies, global real estate and other riskier, non-traditional investments. Before considering an investment in an alt fund, FINRA cautions investors to learn about the funds investment structure, strategy risk factors, investment objectives, operating expenses, fund manager and performance history.

Financial advisors and broker-dealers often pitch alt funds as a means to generate above-average returns or as a diversification strategy. But before considering any investment in these non-traditional funds, or, for that matter, any investment, investors should carefully consider their risk tolerance and overall investment objectives.

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