A Better Categorization of Mutual Funds & ETFs using Alternatives

The recent growth of sophisticated investment strategies inside of mutual funds and ETFs has started to blur the lines between traditional and alternative investments. Today’s innovative funds and ETFs increasingly employ strategies once reserved for hedge funds and institutional investors – using futures contracts, options, strategic leverage, and alternative investment techniques to generate returns and manage risk. A single fund might combine multiple strategies like trend following, volatility trading, and systematic macro approaches, making it difficult to pigeonhole into conventional categories.

This evolution creates particular challenges when traditional analysts attempt to evaluate these products through conventional lenses. For instance, how do you categorize a fund that maintains full equity exposure while simultaneously deploying that same capital into managed futures? Or a strategy that combines options premium collection with volatility trading? These products don’t fit neatly into traditional boxes like “Large Cap Growth,” or even the moniker “Alternatives”, which in many cases may only describe half of what the fund is doing. 

Alternative investments themselves have evolved beyond simple long/short equity or managed futures strategies. Modern alternative products might employ:

• Return stacking techniques to achieve multiple sources of return with the same capital
• Short term Quantitative and Systematic trading across multiple asset classes
• Options strategies for both income generation and risk management
• Sophisticated volatility and vix replication trading approaches for use as a hedge
• Multi-strategy solutions that combine several alternative approaches

We can’t help but think a better approach may be categorizing via a more nuanced framework that focuses on how these products function within a portfolio rather than simply what assets they hold or what single strategy they employ. Below, we’ve re-imagined the categorization of several modern mutual funds and ETFs into more functional groups based on their intended portfolio role:

• Alternative Blends, Blended Traditional Alts: Strategies designed to replace or enhance the traditional balanced portfolio approach using multiple return sources
• Equity Replacement: Products that aim to deliver equity-like returns with different risk characteristics or enhanced income generation
• Bond Replacement: Solutions that seek fixed-income-like outcomes using modern tools and alternative approaches
• Standalone Diversifiers: Unique exposures and alternative strategies that can serve as portfolio diversification tools

This functional categorization helps investors better understand how these products might fit into their investment strategy, focusing on what these funds do rather than simply what they own or how they’ve been traditionally classified.

Let’s examine each category and some examples of mutual funds and ETFs operating in those spaces:

Detailed Breakdown of Modern Investment Categories

Alternative Blends, Blended Traditional Alts

This category represents the evolution of the classic 60/40 portfolio, addressing its limitations in today’s complex market environment. These solutions aim to deliver balanced portfolio outcomes using sophisticated approaches that go beyond simple stock and bond allocations.

Standpoint Multi-Asset Fund (BLNDX)
Modern Take on “All Weather” Investing

• Core strategy employs global diversification across multiple asset classes
• Uses systematic trend-following to adapt to market conditions
• Maintains exposure to developed market equities similar to global market-cap weights
• Aims for consistent performance across different market environments
  Key Differentiator: Combines traditional market exposure with systematic trend following across multiple asset classes

Return Stacked Balanced Allocation & Systematic Macro (RDMIX)
Return Stacking Innovation

• Unique “return stacking” approach targets 200% total exposure:
  • 100% to traditional balanced allocation
  • 100% to systematic macro strategies
• Efficiently uses capital to access multiple return streams
• Actively managed to adjust exposures based on market conditions
  Key Differentiator: Uses modest leverage to combine traditional balanced portfolio with systematic macro strategies

Return Stacked US Stocks & Managed Futures ETF (RSST)
Equity Plus Trends

• Maintains full U.S. equity market exposure while simultaneously accessing managed futures
• Combines traditional beta with alternative return streams
• Uses futures contracts to implement trend-following strategies
• Minimum 80% investment across both strategies
  Key Differentiator: Provides full equity exposure plus managed futures without sacrificing either allocation

Q3 All-Season Tactical Fund (QAITX)
Tactical All-Weather Approach

• Focuses on absolute returns across market conditions
• Actively combines Treasury futures and equity index futures
• Uses money market and short-term bonds for capital efficiency
• Tactical allocation adjusts based on market environment
  Key Differentiator: Tactical approach to combining traditional and alternative exposures

Equity Replacement

These strategies aim to provide equity-like returns with enhanced risk management, income generation, or both. They represent modern approaches to capturing equity market upside while potentially reducing drawdown risk or enhancing income.

Rational Equity Armor Fund (HDCTX)
Dividend Focus with Options Enhancement

• Minimum 80% investment in S&P 500 dividend-paying stocks
• Options strategies for additional income and risk management
• Total return approach emphasizing dividend income
• Systematic options overlay on equity portfolio
  Key Differentiator: Combines dividend strategy with options enhancement

AlphaCentric Premium Opportunity Fund (HMXIX)
Sophisticated Options Income

• Complex options and futures strategy on S&P 500 and VIX
• Multiple return streams from premium collection and volatility trading
• Adaptive approach to market conditions
• Focus on generating consistent income regardless of market direction
  Key Differentiator: Multi-faceted options strategy for income generation

Alpha Fiduciary Quantitative Strategy Fund (AFQSX)
Quantitative Equity Exposure Management

• Systematic trend-following on S&P 500
• Uses ETFs and futures for efficient implementation
• Quantitative signals determine market exposure
• Ability to reduce equity exposure in declining markets
  Key Differentiator: Systematic approach to managing equity market exposure

Return Stacked US Stocks & Futures Yield ETF (RSSY)
Enhanced Yield Through Return Stacking

• Combines full equity exposure with futures yield strategy
• Targets 100% exposure to each component
• Uses futures contracts for capital efficiency
• Non-diversified structure allows concentrated positions
  Key Differentiator: Maintains equity exposure while adding yield enhancement

Catalyst Nasdaq-100 Hedged Equity Fund (CLPAX)
Technology-Focused Hedged Exposure

• 80% minimum investment in Nasdaq-100 constituents
• Focus on large-cap growth and technology
• Includes international exposure
• Hedging strategies to manage downside risk
  Key Differentiator: Hedged exposure to technology-heavy index

Q3 All-Season Systematic Opportunities Fund (QASOX)
Systematic Market Participation

• Combines index futures with fixed income instruments
• Systematic approach to market exposure
• Uses money market and Treasury securities for collateral
• Adaptable strategy based on market conditions
  Key Differentiator: Systematic approach to capturing market opportunities

BOND REPLACEMENT

These strategies aim to provide fixed-income-like characteristics using modern tools and approaches, addressing the challenges of traditional bonds in a low-yield, high-inflation environment.

Rational Tactical Return Fund (HRSTX)
Multi-Strategy Options Income

• Three-pronged approach combining:
  • Premium collection from options selling
  • Volatility trading in both directions
  • Trend-following overlay
• Focus on consistent income generation
• Risk management through position sizing and diversification
  Key Differentiator: Multiple options strategies for enhanced income

Catalyst/Warrington Strategic Program Fund (CWXIX)
Strategic Options Management

• Options spread strategies on S&P 500 futures
• Focus on capital preservation with income generation
• Strategic position management
• Cash collateral for risk management
  Key Differentiator: Sophisticated options spread strategies for consistent returns

Return Stacked Bonds & Futures Yield ETF (RSBY)
Enhanced Fixed Income

• Combines traditional bond exposure with futures yield strategy
• Targets 100% exposure to each component
• Uses futures for capital efficiency
• Focus on total return with income component
  Key Differentiator: Return stacking approach to fixed income

STANDALONE DIVERSIFIERS

These investments provide unique exposures and alternative return streams that can help diversify traditional portfolios.

Crypto/Digital Assets:

STKD Bitcoin & Gold ETF (BTGD)
Digital-Physical Hybrid

• Combines exposure to Bitcoin and gold
• Uses regulated futures contracts
• Provides inflation hedge potential
• Balances modern and traditional alternative assets
  Key Differentiator: Unique combination of digital and physical store of value

2X Ether ETF (ETHU)
Leveraged Ethereum Exposure

• 2x daily leverage on Ethereum performance
• Uses regulated futures contracts
• Sophisticated collateral management
• Designed for tactical positioning
  Key Differentiator: Amplified exposure to Ethereum price movements

2x Bitcoin Strategy ETF (BITX)
Leveraged Bitcoin Exposure

• 2x daily leverage on Bitcoin performance
• Regulated futures implementation
• Professional risk management
• Tactical trading tool
  Key Differentiator: Enhanced Bitcoin exposure through futures

Trend-Following Strategies:

Blueprint Chesapeake Multi-Asset Trend ETF (TFPN)
Comprehensive Trend Following

• Systematic trend capture across markets
• Multiple asset class exposure
• Focus on capital preservation
• Professional trend implementation
  Key Differentiator: Broad-based trend following across markets

Cambria Chesapeake Pure Trend ETF (MFUT)
Pure Trend Strategy

• Focused trend-following approach
• Global market exposure
• Multiple asset classes
• Systematic implementation
  Key Differentiator: Concentrated focus on trend capture

AXS Chesapeake Strategy Fund (EQCHX)
Multi-Strategy Trend Following

• Combines fixed income portfolio with futures trading
• Global market exposure
• Multiple instrument types
• Sophisticated risk management
  Key Differentiator: Comprehensive approach to trend following with fixed income base

Volatility Products:

-1x Short VIX Futures ETF (SVIX)
Inverse Volatility Exposure

• Short exposure to VIX futures index
• Daily rebalancing methodology
• Sophisticated futures management
• Benefits from volatility decline
  Key Differentiator: Inverse exposure to market volatility

2x Long VIX Futures ETF (UVIX)
Leveraged Volatility Exposure

• Double exposure to VIX futures
• Daily rebalanced portfolio
• Crisis hedge potential
• Tactical volatility trading
  Key Differentiator: Amplified exposure to market volatility

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