Although stock markets started off 2016 with a historically bad opening week, liquid alternative funds have demonstrated their potential value during such periods of instability. For example, funds in the managed futures category gained 1.21% in the first week of trading, outperforming all but four of the more than 90 fund categories tracked by Morningstar. Managers say that strategies aimed at trends in currencies, commodities, interest rates and stocks aren't affected by the overall direction of the market, making them an effective addition to investors' traditional portfolios.

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