In this video, DailyAlts.com publisher and editor Brian Haskin interviews Rob Guttschow, Senior Portfolio Manager of First Trust Advisors at the Investing in Liquid Alternatives conference in New York City. Mr. Guttschow tackles issues ranging from Morningstar’s fund categorization and outcome-oriented investing to rising inflation expectations in the U.S.
One problem facing the liquid alternatives industry, in Mr. Guttschow’s view, is that many extremely disparate funds are indiscriminately thrown into Morningstar’s “Alternatives” category. While investors can be fairly confident that all funds designated by Morningstar as Large-Cap Value will share common characteristics, funds in the Alternatives category can range from “concentrated 10-stock portfolios with a lot of risk” to “cash funds trying to get LIBOR +100 in government-guaranteed mortgage agencies,” so it’s important for investors to hone in on what an alternative fund’s objectives are.
The most generic alternative fund objective is “superior risk-adjusted returns,” usually with the promise of lower correlation. In Mr. Guttschow’s view, this is one of the major benefits of alts: They can provide higher returns per unit of risk when implemented within an existing portfolio.
Mr. Guttschow also talked about outcome-oriented investing, which seeks to address particular challenges. These could include outperforming in the event of widely expected rising U.S. inflation, or simply achieving retirement or tuition-payment goals. Ultimately, the goal of all advisors should be to “maximize the terminal wealth” of their clients, according to Mr. Guttschow.
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