Liquid alternatives are darlings of diversification and downside protection for some advisors, many of whom looked in the rear-view mirror during and after the Great Recession and saw the need for a new way to manage risk.
The Data Looks Good Over the Long Haul
There is great variety when it comes to the investments classified as liquid alts, from multi-strat to long/short strategies, and managed futures. Over the long term (we started in 2000 for our analysis), most liquid alt indexes have achieved the desired portfolio benefits when compared against traditional asset classes.
You know there’s a “but” coming, right?
Here’s the problem: Many liquid alt investments have been generally inaccessible to advisory clients as a 10-20% allocation until recently. That’s why our primer also digs into the performance of liquid alt funds that investors can more easily access.
Our data highlights how liquid alts, despite perceived successes, still face challenges, including:
- Significant tracking error relative to perceived investor expectations and underlying indexes
- High expenses
- Difficulty getting clients to “sit with” the strategies during bull markets
Can you sense that there’s one more “but” coming right about now?
Another ‘But’...At What Cost?
Here’s the thing: At Blueprint, we don’t think diversification and downside protection require esoteric-sounding strategies that feel intimidating to your clients.
That’s why our primer also compares:
- A traditional liquid alt strategy
- An “alternative to liquid alternatives” that is naturally diversified across eight familiar asset classes and uses trend following to dynamically adapt the portfolio allocation as market conditions change
The results — in terms of correlation to equities, drawdown profile, risk-adjusted return, and expenses — might surprise you.
I invite you to take a look by downloading the primer. We’re happy to answer any questions you have about this analysis; just drop us a note so we can discuss further.