AGF Chief Investment Officer Bill DeRoche says alternative investments are an essential strategy for every investor, but their overall impact on a portfolio must be considered. By itself, looking at some alternatives could show a risky possibility, appearing only to do what it’s supposed to in a portfolio.
“To us, it’s being sure to look at how this particular investment affects all the other investments. And because of this plethora product that we’ve talked about, there’s opportunity to add return enhancing product; there’s opportunity to add risk-mitigating product,” says DeRoche.
He adds, “So, you have to go through all of them, and at the end of the day, it’s important to make sure that when you’re showing performance or characteristics, it’s within the context of that portfolio.”
How Many Allocations
DeRoche explains it’s very dependent on the investor, and risk & return. Knowing how much risk an investor is willing to take, in particular, makes a good argument for what choices remain in play for them.
As suggested by DeRoche, “We’re big believers in core-equity exposure being a great way to generate wealth, as well as using some fixed income to control the volatility of that equity portfolio.” The next step is obtaining additional exposures to uncorrelated assets.
However, this does arrive in small amounts. It’s mainly about equities, with some allocated to fixed income. “If this your first opportunity dealing with alternatives, we’re probably looking at 10% and that probably wouldn’t grow to more than 20%,” DeRoche adds.
That in mind, those types of levels allow AFG to engineer a pretty consistent return profile for clients, even as they get older and looking to have less risk in their portfolios.
Moving From Mainstream To Alternatives
DeRoche makes clear it’s not about being opposed to gold, precious metals, and other safety bets when it comes to AFG’s hold on alternatives, however, they do believe they can have a more effective outcome on the portfolio, using some other tools beyond just commodities.
“We’re going to try to expose people, probably, to stuff they haven’t seen before, in terms of using long/short type of exposures to engineer a return stream that can better pick up where equities don’t do so well,” DeRoche explains.
While equities are a great way to pick up wealth, every 10-15 years, equity has a significant drawdown event. So, while gold could be a helpful answer to such an event, DeRoche notes how there are better tools to use to help mitigate this by way of alternatives.
“We’re definitely looking to help educate them on newer stuff. I call it ‘newer’ because, though it’s always been available to accredited, sophisticated investors, it’s only newer to more retail because of the rule changes that have been taking effect from a regulatory perspective.”
For more alternative ETF investing strategies, visit our Alternatives Channel.