Liquid Alternatives: “Alternatives Should Be A Core Holding For Investors” (Mackenzie)
Mackenzie Investments launched Canada’s first liquid alternatives strategies mutual fund in 2018.
Liquid alternatives, also known as liquid alts, are mutual funds and ETFs that aim to provide investors with diversification and portfolio stability through alternative investment strategies. Alternatives include assets such as infrastructure, real estate, and commodities; alternative strategies, which use tools like short-selling or leverage to amplify returns and manage volatility; and private markets, which include equity, credit, infrastructure, or other categories. According to Mackenzie Investments, traditional portfolios should include a component of alternatives for diversification, protection, and steadier returns in today’s volatile markets. (The Globe and Mail)
Retail investors now in the game
Alternatives were hitherto available only to more sophisticated and affluent investors such as high net worth individuals and institutions. However, Michael Schnitman, head of alternative investments at Mackenzie, believes that these investments are now readily available to retail investors and should form a component of their portfolios.
“We believe that investors should consider having at least 10-to-20% of their overall portfolio allocated to alternatives, based on their investment objectives,” he recommends.
Alternatives, particularly in the form of liquid alts, are suggested in the current market scenario featuring record low bond yields and record-high equity prices. The first offers only scanty returns, the second the increasing risk from a market correction.
“Because of the power of diversification, uncorrelated returns, and different and broader tools in the toolkit, alternatives can help combat volatility in an overall portfolio,” says Mackenzie’s Schnitman.
Another advantage is the exposure to private markets because of the steady decline in the number of listed companies over the past few years.
In his view, the Canadian market for alternatives will play “catch up” with its southern neighbor.
While liquid alt investments in Canada currently total about $10 billion, they are valued at over $700 billion in the U.S.
“It is very feasible to see $100-billion in Canadian liquid alt assets and strategies product over the next five years,” said Schnitman.
Image Credit: Flickr
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