Rise in offbeat investments correlated to 'correlation crisis'

Oct 28, 2012 @ 12:01 am

By Jeff Benjamin

The uncertain economic outlook for at least the next five years — along with “a correlation crisis” — should lead to increased use of unusual investments, according to alternative investments strategist Gabriel Burstein.

Speaking Monday in Chicago at the InvestmentNews Alternative Investments Conference, he laid the foundation for how and why financial advisers should be looking beyond traditional asset allocation models and strategies.

Mr. Burstein cited the example of managed-futures strategies as one of the few bright spots from the 2008 financial crisis but warned that such noncorrelated strategies are becoming increasingly difficult to uncover.

“You might not have heard of the correlation crisis, because I came up with it,” he said. “But the main source of the correlation crisis boils down to the three main sources of portfolio management: fundamentals, technical quantitative and macro.”

Macro strategies have lost much of their strength to outperform due to the simple realities of transparency and endless streams of information, Mr. Burstein said.

Fundamental strategies are af-fected by transparency but also from what he described as a lack of sustainability and a credibility problem.

Mr. Burstein noted that investors who are spooked have a hard time believing and embracing good fundamental data.

That leaves the technical quantitative approach, which can involve high-frequency trading, as “probably one of the major sources of returns,” he said.

As part of his presentation, Mr. Burstein drew distinctions between alternatives strategies that generally include anything that isn't long-only, and alternative assets, which can comprise a long and diverse list.

Some examples of alternative assets are fisheries, vineyards, lumber and alternative energy.

Mr. Burstein also called the movie industry “the most noncorrelated strategy but also the least explored and without a lot of capacity.”

Ultimately, advisers need to embrace alternative investments as the “new glide path” in portfolio construction, he said.

For example, as clients move closer to retirement, instead of increasing the fixed-income allocation, Mr. Burstein suggested a greater allocation to alternatives strategies as a component of risk management.

jbenjamin@investmentnews.com Twitter: @jeff_benjamin

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

Inside the first robo ETF

When it comes to exchange-traded funds, innovations come in all shapes and sizes. Check out Robo Global's Bill Studebaker discussing the first robo ETF.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Video Spotlight

Path to growth

Video Spotlight

Path to growth

Latest news & opinion

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.

SEC bars former rep for alleged share price manipulation

George Thoreson tried to keep penny stock's price high to enable Nasdaq listing.

Nevada fiduciary law raises concerns among retirement professionals, brokerage industry

Critics complain that it conflicts with ERISA and SEC rules and has potential to spur other states to pass their own version of a fiduciary rule.

A special need for financial advice

Advisers don't have to be experts to help special needs families get a jump on lifelong planning.

Broker-dealers and RIAs at loggerheads over fiduciary rule delay

Companies and groups weighing in with comment letters have vastly different viewpoints on the delay's potential impact.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print