Using alternative investments in place of bonds in a portfolio

Nov 14, 2013 @ 12:00 am

Runtime: 2:06

Dorothy Weaver of Collins Capital on how alternatives can fill a role previously held by bonds thanks to their ability to dampen volatility, differentiate returns and provide diversification.

Exclusive coverage of Charles Schwab's IMPACT 2013 conference from November 10-13 in Washington, D.C.

Video Transcript

In terms of the alternatives and the need for alternatives, well, the equity markets are still extremely strong. Is this the time to start thinking about a move that's going to help dampen the volatility as we go forward? Certainly, what I'm hearing from financial advisers, there's an enormous concern about what they're going to do with what, historically, was the bond portfolio. We've had 30 years of a bond bull market. And suddenly, that area that they had always counted on, being non-correlated to equities and counted on for dampening the volatility in their portfolio, and counted on as being the least risk in the portfolio may be the most risk. And so, I think everybody knows what they don't wanna be. Now, they're looking to alternatives to fill that function of decreasing the volatility, differentiating the return drivers, and being non-correlated to the equity markets because we all know risk diversification, diversification, diversification is the best way to protect. I'm looking at what is the best fit in the alternative area for advisers. Clearly, it depends on their goal. I focus on the liquid alternatives, including not only limited partnership headstrongs, but even multi-strategy, multi-manager mutual funds which give an enormous amount of optionality to financial advisers to be able to put it in to their portfolios and get that non-correlation that they're looking for. But the-- what you want is multi-manager, you want multi-strategy, you want diversity of geography, diversity of instruments, and diversity of return drivers. And that then drives down the risk, drives down the volatility, and gives you a nice, steady return that will compound over time.


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