Amid radical outside changes affecting the market, it’s important to note how alternatives have continued to function the way they were supposed to. ETF Trends spoke with Damion Hendrickson, Managing Director, U.S. Business, for AGF, regarding what there is to be said concerning this category.
It’s a big enough category to see some winners and losers to speak on a broad sort of basis. There are all sorts of style trends that accomplish what they are supposed to do, and others that cannot.
“It’s a difficult question to sort of pinpoint, but broadly speaking,” Hendrickson states, “I don’t think we’ve seen enough to answer that question, meaning I don’t think there’s been a mark to market in these less liquid alternatives. I think that is a story to come.”
Looking at some of the alternatives that are not priced as frequently, they haven’t had the mark to market on some of those products. This shows that there’s still more to come in terms of some of the more institutional money, and whether or not alternatives are managing to function as designed.
Preserving Wealth
The idea is to help investors who have created wealth and to preserve wealth, and the view for alternatives is as a way to reduce volatility. Most investors view alternatives as the same.
Looking at what alternatives AGF offers, such as the AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL), the idea was to reduce volatility in people’s portfolios, add value, and smooth out the downturn in a volatile market. As it stands, Hendrickson feels AGF was able to do what was needed when it comes to all of the alternative products.
Right now, it’s an evaluation based on the institutional, intermediary, and retail customers looking at their portfolios. It’s a matter of trying to gauge viewing the alternative as to whether or not it’s performing as it is supposed to.
Hendrickson believes many people thought they were going to reduce volatility in their portfolio, only to find that some of these funds are not able to effectively save them from a 35%+ drawdown, for example. This will be making it difficult for people to make that money back up, which is why there’s a real review of people’s view of alternatives not doing what they thought.
Accounting For Volatility
As far as how BTAL has performed, given the volatility in play, Hendrickson explains how the market is certainly chasing return. As a result, there will be people looking at products and then shows solutions that held up and performed, which is enough for some.
“You look at your average investor’s portfolio with that 35% drawdown we had, and you now need 50%+ to get that back, and that’s difficult,” Hendrickson states. “So, if they’re going to take a look at their portfolio that held up in their alternatives space, they need to make sure they can have that same sort of drawdown. The reason that they had, and alternative in their portfolio was to reduce that volatility and help with the downturn.”
Hendrickson feels it’s a time right now where, with things at a near-zero rate market, the alternative bucket gets “looked at broader.” It’s not just a way to preserve capital, but to move forward to reduce volatility in portfolios. Investors are going to look at their asset allocation to fixed income in a zero-rate market, and try to understand if there’s some type of alternative that can be added to get that yield or fixed income return, given the rates.
“I think that people are going to look at alternatives in a different light, and not just from the reducing of volatility, and the long/short of the details of the world,” Hendrickson states. “Are their places in private credit right now, or distressed credit, or places that they’ll look to supplement their fixed income portfolio. I think alternatives, in general, whether it be BTAL or others, are going to be pretty attractive to customers for the ones that held up, moving forward.”
It’s a more straightforward story to tell when one can point to how AGF did precisely what they said they would do when it comes to preserving the capital in the down market.
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