Whatever the weather, go alternative
Instead of trying to predict the next crisis, advisers are better off allocating alternative strategies to help create robust portfolios whatever the weather, according to Capital Fund Management president, Philippe Jordan.
Jordan told Money Management that a diversified portfolio was likely to perform better over the long term than a concentrated portfolio, and investors can expect that by investing in different asset classes, portfolio risk is reduced.
And, investing in alternative assets isn’t new either, with Jordan pointing to a long history of institutional investors understanding the need for such strategies to produce strong risk-adjusted returns that are decorrelated from equity and fixed-income markets.
Jordan said one strategy that had gained traction was “alternative risk premia” or “alternative beta”, that aimed to capture big and consistent market drives.
“Research undertaken by pioneers in the alternative beta space, such as CFM, clearly indicates that excess returns from hedge funds can be attributed to factors that have been extensively researched and are well understood,” said Jordan.
“And more importantly, it is possible to systematically capture these persistent behavioural biases and alternative risk premia which make up the building blocks of hedge fund strategies – and to offer them to all investors in a liquid and low-cost way.”
In terms of hitting the mainstream, Jordan said alternative strategies are already there due to a growing recognition that strategies like long-term trend following can provide effective diversification and risk management.
As far as market outlooks go, CFM wasn’t concerned with favourable or unfavourable conditions, and instead suggested alternative strategies are always handy.
“As the old adage goes – ‘time in the market is more important than timing the market’,” said Jordan. “By having an allocation to alternative beta strategies over time, you are effectively protecting your portfolio for an inevitable market downturn.”
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