Alternative Investments: Alts Offer Most Effective Downside Protection – Smith & Williamson
Smith & Williamson had £21.9 billion (US$ 30 billion) of funds under management and advice as of 30 June 2020.
According to Smith & Williamson Investment Management’s Managed Portfolio Service, alternatives will perhaps offer the most effective protection against market declines over the coming decade. Fixed income allocations, which traditionally were the investors’ fall-back in times of market turmoil, may not be as effective, and going forward, alternatives are better suited for diversifying investment portfolios and controlling risk. (Wealth Adviser)
Bonds are no longer relevant for protection
“What’s going to protect your portfolio in the next ten years? It’s not going to be what protected it 20 years ago, because bonds now offer you minimal protection,” says James Burns, co-manager of Smith & Williamson’s Investment Management MPS.
“We are overweight index-linked bonds because we are of the view that if you are going to hold fixed income, it should be linkers, such as the ASI Global Inflation-Linked Bond Fund. But otherwise, bonds are going to offer you negligible portfolio protection and investors will be better served looking elsewhere.”
“Strategies such as the Neuberger Berman Uncorrelated Strategies Fund and Picton Property Income REIT are the type of diversifiers that help protect portfolios and that’s why we hold them,” says Burns.
Alts: Returns and costs
Investors would do well to invest in alternatives that earn 4 – 5% a year though they might worry about high fees.
However, Burns has this to say on fees: “It’s tempting, in a post-MiFID world, for clients to focus heavily on costs. But lots of alternative strategies such as hedge funds or property REITs pay for themselves in what they offer in returns and diversification.”
“For defensive portfolios seeking to protect against the downside, we think that alternatives are – and will remain for years to come– the best way to protect capital.”
Smith & Williamson
As of September 2020, Smith & Williamson is part of the Tilney Smith & Williamson group.
It employs over 1,800 people across 11 offices in the UK, Ireland, and Jersey, and is also the 8th largest UK accountancy firm.
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