Alternative Costs

Did Alternative Strategies (VASFX) run into some trouble earlier this year? Some time between November 2021 and April 2022 Vanguard paid $637,000 into the fund to cover “higher-than-anticipated costs associated with short sale transactions.”

As you may recall, the fund uses a variety of strategies to achieve a goal of outperforming its benchmark—an index of 3-month Treasury bill returns. Those strategies include bets on events that can affect a stock’s prices (for example, a merger) and movements in interest rates, currencies and commodities. The managers also employ long/short strategies that match bets on rising stocks prices with bets on falling stock prices.

Dan and I call this Vanguard’s “hedge fund.” But returns have been worse than lousy. It all seems very complicated for a portfolio that’s designed simply to outperform 3-month Treasury bills which are, essentially, cash.