Franklin’s K2 Alternative Strategy Fund

K2 Highlights from Meeting with Manager

At a recent meeting with Franklin Templeton, Max Corvin explored some reasons why some wealthy investors have outperformed the markets and most mutual funds over the long term.

He and his team called K2 believed from their research that the wealthiest of investors were making more money because they had access to Hedge Funds. These Hedge Funds used alternative investing strategies that tended to have better downside protection during poor market cycles. Because they didn’t go down as far, they then didn’t need to gain as much when markets turned around.

Last year, Franklin Templeton acquired K2 advisors and gave non-accredited investors access to Hedge Fund managers. We’re excited to be able to offer this fund to you in your portfolio at Pershing.

What are the advantages to the Franklin K2 Alternative Strategies Fund versus a traditional hedge fund?

• These funds are open to all investors. Clients don’t need to meet any income or net worth minimums.
• Tax reporting is done with a 1099, not a K1 that often comes late and may complicate your taxes.
• Better oversight and transparency: The hedge fund managers who work with K2 must disclose their holdings daily. The traditional hedge fund isn’t regulated in the same way and doesn’t need to disclose holdings or trading activity as frequently.
• Lower fees. The K2 charges around 2% in management fees, compared to a 20% performance AND a 2% management fee commonly charged by hedge funds.
• More Liquid. You get daily liquidity with this mutual fund. Not all Hedge funds are liquid.
• Having an alternate investment may lead to better portfolio performance.

*This chart depicts hypothetical investments.  It is for illustrative purposes only and does not represent the K2 Alternative Strategies Fund’s portfolio composition or performance.  The HFRI index is comprised of traditional hedge funds.  The K2 fund may have performed differently than what is depicted here.  Charts and graphs should never be relied upon as the sole basis for investment decisions. Chart from Franklin Templeton K2 brochure

How does it work?

The K2 team doesn’t directly manage the money. Rather, they actively select the hedge fund managers whom they consider to be the best in the industry, and allocate the money daily between these managers. They now have 4 or 5 different active strategies that they allocate the money to:

• Global Macro
• Long Short Equity
• Event Driven
• Relative Value

How have Alternate Strategies performed in the past?

**Chart from Franklin Templeton K2 brochure

To learn more about this The K2 Alternate Strategies funds, please click here for the PDF Guide. Please give us a call at 619.435.1234 or an email if you have any questions.

NOTE: This article is not intended as a solicitation to sell the K2 Alternative Strategies funds. Investors should read the fund prospectus prior to investing in any fund.

*Source: FactSet. Initial allocations for the conventional portfolios are 100% Global Fixed Income, 50% Global Fixed Income / 50% Global Equity and 100% Global Equity. For the 50% Global Fixed Income / 50% Global Equity portfolios with hedge components added, the stated allocations to the hedge components are taken equally from the fixed income and equity portions of the portfolio, respectively. Illustration assumes monthly rebalancing. Global Equity is represented by the MSCI World Index. Global Fixed Income is represented by the Barclays Global Aggregate Index. Hedge Strategies are represented by the HFRI Fund Weighted Composite Index. Indexes are unmanaged and one cannot invest directly in an index. While this information is based on index returns and does not represent the fund’s performance, it provides an indication of how an allocation to hedge fund strategies could affect overall portfolio performance. Returns data represents average annual total returns and assumes reinvestment of interest or dividends. Risk is measured by the annualized standard deviation of monthly total returns.

**Source: FactSet. U.S. Equity is represented by the S&P 500 Index. Global Equity is represented by the MSCI World Index. U.S. Fixed Income is represented by the Barclays U.S. Aggregate Index. Global Fixed Income is represented by the Barclays Global Aggregate Index. Hedge Strategies are represented by the HFRI Fund Weighted Composite Index. Indexes are unmanaged and one cannot invest directly in an index. While the information is based on index returns and does not represent the fund’s performance, it provides a general indication of the risk/return profile of hedge fund strategies. Returns data represents average annual total returns and assumes reinvestment of interest or dividends. Risk is measured by the annualized standard deviation of monthly total returns.