Investment and exchange traded fund portfolios are beginning to adapt to the changing market conditions, with more money managers adding alternative asset strategies to help offset risk.
“There are a lot of advisors out there looking for uncorrelated sources of alpha,” Catherine A. Saunders, Head of Registered Investment Advisory Business at Putnam Investments, said in an interview.
Uncorrelated assets do not move in lockstep with traditional stocks or bonds, offsetting losses if equities or fixed-income markets decline.
“A lot of advisors are starting out building portfolios sort of in a balanced approach. The 60/40 mix, if you will, between stocks and bonds,” Saunders added. “90% of your risk is in the equities piece.”
Consequently, the financial industry has created investment themes like risk-parity that allocate toward risk.
In the fixed-income space, we are witnessing the 30-year bull rally bonds fizzling out.