AGF Chief Investment Officer Bill DeRoche recently caught up with ETF Trends to discuss why alternative investments are becoming more mainstream with investors, as referenced in “The Fourth Allocation.”
Deroche explains how, from an alternatives perspective, the main thing being looked at is anything not right with core fixed-income. So, in the alternatives space, there’s a plethora of available new products on the private and public sides.
For AGF, because of the wide-ranging array of products out there, they are making sure to inform clients how necessary it is to understand the potential accomplishments of these alternatives with the portfolio. It’s all about diversification. “We hear it constantly,” DeRoche states.
Particular Product Investors
“One of the things that you need to consider is – Alright, the return stream that you’re considering adding to the portfolio; it typically has low correlation to core equity or core fixed-income. But, is it going to be there when the market is actually having trouble?”
This makes it important to look at the particular product investors are looking to have when the market is going down. Most assets will have some exposure to economic growth. As DeRoche explains, “If the world economy is contracting, that particular alternative that you’ve added to the portfolio may not be there when you need it.”
With that in mind, adding structure to the alternatives, which means shorts in many instances, will create liabilities and harmful exposure to all the various macro factors, including the world economic growth.
Based on discussions about a potential recession, DeRoche states how highlighting those instances where adding diversified asset classes may not be enough, and strategies with a long and short exposure may be needed to compensate.
For more alternative ETF investing strategies, visit our Alternatives Channel.