Note: This article is courtesy of Iris.xyz
By Mark V. Petersen
It’s that time of year again. Kids of all ages—from kindergarten to college—are heading off to yet another first day of school. With new backpacks and fresh notebooks, most of them are all smiles…at least until the teacher assigns homework. And dreaded though it may be, every parent and teacher knows that homework and good study habits are the keys to success – it’s the preparation for coming tests. The student who knows how to carefully hone in on the details that matter most will rise to the top of the class.
The investment world has its own term exams and every advisor, broker-dealer, and due diligence officer knows the pressure of mid terms. Quarterly reports are your own “report card,” and today’s continued low-interest rate environment makes delivering coveted returns quite the challenge. Advisors must create client confidence to set themselves apart from “the competition down the street” and the roboadvisor of the day (no advisor can afford to be a commodity!). Broker-dealers need to provide their advisors with strong options that support that differentiation. And due diligence officers need to identify innovative, suitable alternatives to make it all happen.
So here’s the question of the day: Are you making the grade with your portfolio returns?
If you are, fantastic. It means you’ve found a way to balance risk, probably by embedding a good chunk of alternative investments into your portfolio to lower correlations and effectively hedge the general market trends and reduce risk, regardless of general market volatility. More importantly, it means you’ve found a way to achieve some very real differentiation.[related_stories]
But if your grades could use a boost, here’s a simple, 3-step guide to help you hone in on the most important details, choose the most suitable alternatives for your portfolio and, ultimately, rise to the top of the class:
1. Know what sophisticated investment platforms are looking at today.
One thing is for certain: they’re not following the trends. Instead, they’re looking at stable, non-correlated investments that offer unique growth opportunities and hedge market movement. In most cases, these forward-thinkers are seeking alternative funds that offer unique characteristics that have the potential to lower portfolio correlations and provide additional Alpha.
2. Look for investments that are capital constrained.
Years ago, I was on an American Airlines flight when the flight attendants handed everyone a brochure on mutual funds. I knew then and there it was time to get outof mutual funds! It was a sure sign that too much money was flowing into an investment strategy. While everyone’s ultimate goal is to “buy low and sell high,” even experienced investors fail to abide by the rules to make that happen. The surest route to failure: follow the trends. Instead, seek asset classes that are capital constrained simply because they haven’t yet become the next-best-thing. Opportunities for growth will be in your hand when the trend emerges—and the values increase—down the road.