These are volatile times for equities due to the COVID-19 epidemic, but the AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) is doing exactly what it’s supposed to do: providing investors with shelter from the storm while delivering upside against a challenging backdrop.

Additionally, BTAL can be a helpful force in a situation seen more recently. If the market is strong, high beta does tend to outperform low beta. From a return perspective, BTAL may deliver negative returns, though it still has that risk diversification benefit, which is a benefit. That’s due to wanting to think about pairings, i.e., something that’s less correlated, ultimately resulting in reduced risk.

In rough markets, long/short strategies such as BTAL have benefits.

“One hedging idea that not enough investors consider for their portfolios is the long/short strategy. Many folks simply look at gold, Treasuries, money markets, preferreds and other similar defensive assets to protect other positions in their portfolio,” writes Dave Dierking for Seeking Alpha. “Alternative investments, such as long/short, not only fall into the risk mitigation category, but some are actually designed to deliver positive returns even in the most severe bear markets.”

Breaking Down BTAL Benefits

The benefits will emphasize how BTAL is a risk-diversifier, so with after-market corrections, because of those protections, an investor will not have gone down as much. Less risk ends up benefiting the portfolio, and the investor will have more wealth as well. Additionally, investors will be able to build more wealth, going forward, because they’ll be starting from a higher level.

BTAL is considered an alternative investment and as such can act as an important portfolio diversifier and an avenue for reducing correlations.

Alternatives would be used in an investment portfolio to provide diversification from equities or better protect an investor from downside risks in stocks while bringing some upside participation. Nevertheless, these alternative strategies may include equity exposure, so in a widespread sell-off, investors should not expect complete immunity.

“As a downside hedge, the benefits of a strategy, such as BTAL’s, is pretty clear. With half of the portfolio being short positions, a good chunk of this fund is uniquely positioned to rise in value during market downturns,” according to Dierking. “Considering that high-beta stocks tend to especially underperform during market corrections, BTAL can reasonably be expected to produce positive returns during such conditions as the returns from the high-beta short positions likely outweigh the losses from the long low-beta positions.”

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.