Late cycle market concerns are not uncommon, but there are alternative strategies to look towards. AGF’s Chief Investment Officer and Head of AGFiQ Alternative Strategies, Bill DeRoche, spoke with ETF Trends on this topic, and what that means as 2020 approaches.
A lot of the alternative product is about getting low correlation to core fixed income and equities. However, low correlation doesn’t mean it’s going to provide a hedge.
If the biggest asset goes down, based on low correlation, investors have often looked towards a relative value trade as an alternative. This means finding cheaper products.
“We’re actually looking at the market a little bit differently in that because we’re in late cycle, we’re thinking more about insurance than we are about looking for that relative value, or the next area where you can generate outperformance. We look at all the areas of the market, so we’re always looking for places that we can invest capital,” states DeRoche.
Late Cycle Concerns
Still, there’s concern given the late cycle investors and advisers are currently in. Private equity is extremely stretched in terms of valuation. Private debt is even more concerning in terms of the way covenants have been jeopardized. And some of the other asset classes have been compromised as well.
Right now, it’s all about playing good defense, which means looking for things with a negative correlation. That way, there’s a confidence to come if the market were to correct, which is probable as far as the downside to be had. So it makes sure to have some insurance in place.
The AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) is worth noting, as it does have that negative correlation versus the low correlation, and has been live since 2011 in the U.S. Every instance where the U.S. market has been down 5%, BTAL has been up. So it serves as a good way to ride things out with core equity exposure, which is what people should consider, over continuing to swing for the fence with their investments.
BTAL acts as a type of long/short strategy that goes long low beta stocks and short high beta stocks. Consequently, the ETF strategy can produce positive returns any time low beta outperforms high beta.
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