InstitutionalInvestor.com did a quick post on the evolution of the 60/40 portfolio with the catalyst being that the bond portion may not be able to do what it has always done (‘always done’ is of course subjective) with interest rates being so low. If interest rates ever rise or otherwise normalize then it will be a different experience for most investors and despite advisers’ best efforts there will still be clients who struggle emotionally with it.
The idea that the 60/40 portfolio needs to evolve is something we’ve discussed here many times because it is both interesting and potentially important.
The article cited a couple of investment managers with large AUM levels on their thoughts which included alternative strategies like long short, multi-strategy, activist investing and distressed debt. One adviser said he replaced half of the 40 with multi-strategy.
Another quoted adviser concedes that this strategy may not offer much in the way of return and the article acknowledges the risk of allocating to alternatives, namely that they may not do what investors hope they will when interest rates rise.
There are countless funds that target the above strategies and there are other strategies not mentioned including merger arbitrage, various option strategies as well as funds specifically designed to combat rising rates through negative duration.
Long/short is not my favorite strategy but it is definitely a valid strategy, however I would not expect too many funds in the niche to serve as bond market proxies which is what Institutional Investor was writing about.