Adding Alternatives to an investment portfolio

I first read this article (PDF below) in 2015 when it was published.

I particularly liked their comment as viewing “alternative strategies as part of the ongoing evolution in portfolio construction”.

Hopefully many portfolios have evolved to include an allocation to alternatives, whether non-traditional assets or alternative strategies as characterised in the article.

This article also touches on the theme from my last post about true portfolio diversification “an attempt to push beyond simple diversification in which investors’ funds are divided among multiple assets or asset classes.” i.e. the introduction of the likes Listed Property and Infrastructure into a multi asset class portfolio does not bring “true portfolio diversification” and will more than likely fall short of expectations with respects to the portfolio diversification benefits.

The article’s focus on downside protection is right, and lowering portfolio volatility overall. A Portfolio with lower volatility and a similar return compared to a higher volatile portfolio will produce more wealth over time.

Their framework can also be placed into a Liability Driven Investing (LDI) framework outlined in my earlier posts. In my mind the right “combination of growth and protection” is equal to the right combination of a return seeking portfolio and a liability hedging portfolio as outlined in my earlier posts.

Lastly, if the economic / market case for alternatives was strong in 2015, it must be even stronger in 2018, particularly given many Alternative strategies are more easily accessible, transparent and fee competitive. A number of Alternative ETFs are also appearing. (Not that I am keen on providing market forecasts – more on this in later posts).

Should Liquid Alternatives Be Part of the Core Allocation


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3 thoughts on “Adding Alternatives to an investment portfolio

  1. Pingback: Liquid Alternatives | Kiwi Investor Blog

  2. Pingback: Further growth expected for an Alternative future – Prequin | Kiwi Investor Blog

  3. Pingback: Adding Alternatives to an Investment Portfolio – Part 2 | Kiwi Investor Blog

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