![]() If we’ve learned anything about investing during the past few months, it’s that portfolio construction really does matter. Funds with an absolute return focus tended to be better performers during this difficult period.īy the end of June, once stock markets had stabilized, the Scotia Alternative Mutual Fund Index had fallen just 2.14 per cent year to date compared to 9.7 per cent for the S&P/TSX Composite Index and a gain of 0.29 per cent for the S&P 500 (in Canadian dollars).Īll things considered, liquid alts held up well in what may be the worst economic downturn of our lives. In March, the Scotia Alternative Mutual Fund Index, which tracks about 40 Canadian liquid alt funds of various styles and investment objectives, was down 6.61 per cent while the S&P/TSX Composite Index was down 17.74 per cent and the S&P 500 fell by 8.23 percent (in Canadian dollars). So, how did they perform?īroadly, they did what they were supposed to do. It was the first real test for Canadian liquid alts. Then, the pandemic hit and stock markets around the world plummeted more than 30 per cent. The Canadian Association of Alternative Strategies & Assets and other market observers say that number could top $100-billion by 2024. ![]() ![]() In just 18 months, the liquid alts market accumulated $8-billion in AUM. Many advisors and investors were nervous about how inflated the markets had become and were looking for ways to generate better risk-adjusted returns. It turned out that 2019 was an ideal time to democratize liquid alts and make them accessible to retail investors. However, advisors in Canada couldn’t consider them for clients’ portfolios until the Canadian Securities Administrators made them available to retail investors last year. In fact, there were more than US$700-billion in liquid alt assets under management (AUM) and strategies in the U.S. These strategies have been available to Canadian institutional investors and U.S. These attributes make them valuable tools for portfolio construction. As well, some of these funds are absolute return funds for which performance is not based on whether they beat a relative benchmark. They generally aim to produce mid- to high single-digit returns, with similar volatility over a stock market cycle. The advantage for advisors and their clients is that these funds can move independently of the markets, have a low average correlation to traditional indexes and are designed to stabilize portfolios when markets drop. In short, liquid alts are mutual funds and exchange-traded funds that use alternative investment strategies – such as long-short, market neutral and managed futures, among several others – to infuse portfolios with more advanced methods of risk reduction, diversification and downside protection. As such, financial advisors should consider including liquid alts when building portfolios for their clients. But it wasn’t until the COVID-19 stock market downturn earlier this year that these products demonstrated their value in limiting downside risk. Liquid alternative investment funds, better known as liquid alts, officially became available to Canadian retail investors in Jan.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |