Alternative Strategies Income Fund (LTAFX)

Alternative Strategies Income Fund is a mutual fund that pools money from retail and institutional investors and deploys it into alternative investment strategies — chiefly long-short equity approaches and strategies borrowed from hedge funds — designed to generate income with lower volatility than traditional stock-market investment.

Like any mutual fund, the fund works through a simple equation: investors buy shares in the fund, their money goes into a pool, a professional manager invests that pool according to the fund’s stated strategy, and the income and gains (or losses) are distributed back to shareholders according to their stake. The fund charges an annual fee for this service, which comes directly out of the investment returns. Alternative Strategies Income differs from a standard equity mutual fund not in this basic plumbing, but in what the manager actually does with the money.

The long-short equity toolkit

A long-short equity strategy is a way of making money that does not depend entirely on stock markets going up. The manager buys stocks they think will rise (the long side) and sells short stocks they think will fall (the short side). By combining both positions, the manager aims to profit from good stock-picking skill while hedging out the risk that the entire stock market declines.

The appeal is intuitive: a manager who is good at identifying winners should profit from those picks even if the overall market falls. And a manager who is good at spotting losers can make money by shorting them. In principle, a skilled manager with long-short flexibility can generate positive returns in bull markets, bear markets, and sideways markets — true diversification that standard buy-and-hold equity investors cannot achieve.

In practice, long-short is harder than it sounds. Shorting costs money (you must borrow shares to sell short, and lenders charge a fee). The manager must be right about which companies will outperform and which will underperform, consistently, over long periods. And when the strategy works, the volatility tends to be lower but not zero — it is still tied to stock-market fundamentals and sentiment, just with some of the swings dampened by the short positions.

Income generation and the fee structure

Alternative Strategies Income is not primarily a growth fund. It does not aim to appreciate a lot in value; instead, it aims to generate cash income. This income comes from dividends on the long positions, profits from short positions (when the shorted stock falls in value), and occasionally options strategies or other income-producing tactics.

The fund charges an annual fee that the investor pays regardless of performance. This fee is deducted from assets before returns are calculated, so if the fund invests well and earns a return that is higher than the fee, shareholders see a positive net return. If the fund’s investments underperform the fee, shareholders lose money in real terms even though the fund’s gross investments may have risen slightly.

Because Alternative Strategies Income is focused on income, the fund is likely to distribute that income to shareholders regularly — monthly or quarterly — via dividend payments. This appeals to investors seeking cash flow from their portfolio, though it is important to understand that these distributions may come from capital gains or even capital itself, not just from genuine operating income. A distribution is a distribution, regardless of its source.

Building a portfolio of alternatives

Alternative Strategies Income does not just buy individual stocks. The fund also allocates to alternative strategies — essentially hiring external managers or using techniques that hedge funds use. This might include:

Private equity or debt positions — stakes in private companies or corporate loans, which are less liquid but often offer higher yields than public bonds.

Option strategies — buying and selling options to generate income or hedge risk, a tactic that can backfire if market moves are extreme.

Event-driven investing — capturing profits from corporate events like mergers, spinoffs, or bankruptcies where the outcome is partly predictable.

Managed futures or trend-following — strategies that attempt to ride market trends up and down, independent of fundamental value.

Each of these approaches adds complexity and cost. Each also comes with specific risks. Option strategies can blow up in volatile markets. Event-driven investing can go wrong if the expected corporate transaction falls through. Managed futures can lose money for years in certain market regimes.

The challenge of alternative liquidity

One key constraint on Alternative Strategies Income is liquidity. Many alternative investments are not easily bought or sold. A stake in a private company, a loan, or a complex option position might take weeks or months to exit, or might only be saleable at a steep discount. But mutual funds are open-end funds, meaning investors can redeem their shares (cash out) any business day.

This creates a mismatch. If a lot of fund investors want to redeem their shares at the same time (say, during a market panic), the fund must raise cash to pay them. If the underlying alternative investments are hard to sell, the fund may be forced to liquidate liquid holdings at bad prices or to borrow money to meet redemptions. This is why many alternative-focused funds eventually close to new investors or gate redemptions (temporarily stop allowing withdrawals) during crises.

Performance and the fee question

Because Alternative Strategies Income charges an annual fee on top of the underlying costs of its investments and the costs of its managers, the fund faces a persistent hurdle: it must outperform by enough to cover its own costs, plus cover the underlying costs of the alternative strategies it accesses, plus beat whatever benchmark or comparison the investor uses (typically an equity index or a bond index).

This is mathematically demanding. If the fund costs 1 percent per year in fees and the alternative strategies it accesses cost another 1 percent, the fund must outperform its benchmark by 2 percent per year just to break even relative to the benchmark. Many active managers and alternative funds struggle to clear this hurdle, especially over long periods.

How to evaluate Alternative Strategies Income as an investment

Start by reading the fund’s prospectus and fact sheet, which are available from the fund company and from SEC filings (SEC CIK 0001496254). The prospectus explains the investment strategy, the risks, the fees, and the historical performance.

Key numbers to examine: the annual expense ratio (the total cost as a percentage of assets), the turnover ratio (how often the fund buys and sells, which is a proxy for trading costs), and the performance history compared to a relevant benchmark. A long-short equity fund should be compared not against the S&P 500, but against indices of long-short strategies or a portfolio of 50 percent stocks and 50 percent bonds.

Also look at the fund’s income distribution history. Is the fund consistently distributing more than its reported earnings, which would signal it is eating into capital? Or is the distribution sustainable from operating income? A fund that shrinks because redemptions exceed performance is a red flag.

Finally, pay attention to the manager’s track record. Who is managing this fund? How long have they been in this role? What were their returns before they took the job? Alternative strategies depend heavily on manager skill, so manager changes and track record matter more than they do in a passive index fund.