Should alts trump bonds in investor portfolios?

Jan 6, 2014 @ 12:00 am

Runtime: 3:28

Gemini's Andrew Rogers discusses how alternative investments could be a worthwhile replacement for bonds, which are seeing losses at record rates.

Video Transcript

When you look at the market overall and the evolution of investment companies especially mutual funds, it's really changed a lot. I think going back to 2008 was really a landmark recession because what we found was the retail investor could not handle that 30 or 35 percent drawdown. And we had alternative products that really came about to really reduce volatility, reduce risk. Maybe less returns, but a smoother rise. Investors could still enjoy the upside of the equity market and, you know, have a little more security. And now here we are in 2013 and really for most people they have their allocations. The bonds are the safe portion of their portfolio. Well, early this year, whether it yields all-time lows, how safe are bonds? And I think as you can see, the long-term bonds could be down as much as 10 percent this year. There's a need to have a greater allocation, have substitute for bonds in your allocation so these alternative products whether it be long, short, or fixed income; whether it be using options to reduce risk; and other ways to lower risk to make it a safe part of your portfolio as a substitute always powerfully for fixed income products and we're seeing a lot of those funds coming out right now. Three, four, five years ago, they're all relatively new and there was a really big first to market and-- so it's hard to really judge them. But now, some of these products have been out three to five years so you can actually see a performer's track record, you know. And some of these advisers are really good at educating the marketplace. So, we have clients that have like, you know, alternative university and really just do a lot of education about their strategy, about their products. And that's what advisers have the ability to do. They need to look at the strategy themselves, if possible, look at long-term track records, maybe not even the fund itself, but, you know, products they've managed like that and then the market's has been turning a bit now so you could actually see track records for some of these funds. You know, in some of the cases, in other-- these advisers have track records that go back 20 years. So, you can really see a long-term trend. You know, they've always existed, but they're always hedge funds, or LPs, or a CTA and, you know, numerous other names that they've been called. The products have always been out there, but they're more for the qualified investor, but now that they're coming out in the retail mutual funds, you know, they're really coming out for the retail investor also. In a perfect world, if equities have the best performance, if you hold equities for 30 years, that's probably the best strategy, but for most people, they don't have a 30-year time horizon or they cannot suffer the volatility of equity markets. So, what the products really do is, is that they reduce volatility, enhance performance, or basically smoothen over short-term periods, so it may actually reduce performance of a long run, but it just may make the experience much better and that's why I think these alternative products are very important because, you know, just talking to people, my friends, family, you know, they've talked about the equity markets and it's the same thing always. When the equity markets are doing great, everybody is jumping in thinking that easy money. And when the markets are down, they wanna sell and, you know-- I think all kinds of study show that while equity markets may average 8 percent, the average investor average is 3 percent because they always time the market incorrectly. And these products are just really made so you can have a better asset allocation so that people can be long-term investors by having a really more wholistic allocation to assets.


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