Liquid Alternatives: A Potential Golden Era Afoot For Liquid Alternatives
Asset allocations are heavily skewed in favor of equities and investors’ portfolios may be risky.
“A fundamental economic standpoint is clearly one of a high degree of risk and traditional asset allocations have been heavily tied to equity market growth,” he observes.
Therefore, Hood advocates an absolute return mindset that focuses on the reduction of drawdowns. That would allow for the power of compounding of returns. (MONEY|MANAGEMENT)
Davin Hood, Cor Capital
Davin has 20 years’ experience in stockbroking (UBS and Citigroup) and funds management (Merlyn Asset Management). He has served institutional and private clients on both a discretionary and advisory basis.
Before Cor Capital, from 2006 to 2011 he served as a Director in the Wealth Management division of UBS Australia. He established Cor Capital in 2012 to manage the Cor Capital Fund.
Furthermore, he has undergraduate and post-graduate qualifications in finance and is a Fellow of the Financial Services Institute of Australasia.
What should the small guy do? Liquid alternatives….
Davin Hood points out that institutions use a wide variety of tools to hedge risks in the current environment. These include derivatives, long volatility allocations, and defensive option strategies.
These methods are, however, generally beyond the sophistication of a retail investor.
Additionally, small investors seek daily liquidity, lower fees, and increasingly, a passive SMA arrangement.
In these circumstances, risk-averse investors could take recourse to liquid alternatives. These products are attractive according to Hood because of “their ability to participate less or actively take advantage of negative market environments.”
Examples include “all-weather” multi-asset portfolios such as absolute return focused strategies that would fit into the liquid alternative bucket and perform in all potential market environments.
Hood: A golden era for liquid alternatives
“While traditional 60/40 type portfolios could face significant risk as bond and equity correlations increase, this calls for increased allocations to alternative strategies to improve risk-adjusted outcomes,” suggests Davin Hood.
“This is setting up a potential golden era for liquid alternatives that focuses on absolute returns to improve investor outcomes,” he adds.
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