Furthermore, Bear Market funds had a negative beta and were more volatile than the stock market, whereas Market Neutral funds had a near-zero beta, making them less volatile than the stock market. The two categories of alternative funds underperformed the traditional funds, with substantially greater variability of returns and larger tracking errors. Bear Market fund returns generally move in the opposite direction of the stock market, whereas Market Neutral funds and the average traditional fund returns rise and fall with the stock market. Alternative funds, however, have significantly larger expense ratios, larger portfolio turnover, and fewer portfolio holdings. The results indicate that alternative mutual funds are, on average, younger and smaller in size than the average traditional fund. This study investigated the portfolio characteristics and investment performance of alternative mutual funds from April 1993 to March 2013, focusing on Bear Market mutual funds, Market Neutral mutual funds, and a sampling of traditional stock mutual funds.
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