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.
“Duration, I think, continues to be at the center of biggest concerns in fixed income,” Saunders warned.
Consequently, advisors are beginning to shift down duration in their portfolios.
When it comes to investing in alternative strategies to boost performance or cushion positions, advisors and investors still require a lot of education. Most are still stuck in their 60/40, stock/bond mindset.
“We had to educate advisors and also help them educate clients on what this category is all about,” Saudners said. “We had to address the concept of what alternatives is all about.”
Watch the video below to see the full interview with Cathy Saunders.
To view past video interviews, visit our videos section.