By Bruce W. Fraser
Alternative investments such as managed futures should play a
larger role in portfolio diversification, but they are still not
well understood by advisors and investors, according to Genworth
Financial Wealth Management. "With a volatile market, investors
need to better understand true diversification, specifically the
allocation of assets across different classes," Gurinder Ahluwalia,
president of GFWM, said during a round-table discussion in New York
City this week that sought to demystify alternative investments.
"The conditions over the last few years have proven that
traditional approaches may not be enough and that there is a need
for investors to employ new strategies, potentially including
alternative investments. Financial advisors are a critical
component to helping investors incorporate alternatives into their
portfolios." The discussion, led by Ahluwalia, featured Anne
Lester, managing director and senior portfolio manager with J.P.
Morgan Asset Management's Global Multi-Asset Group (GMAG), Jon
Sundt, CEO and president of Altegris Advisors, and Michael Abelson,
senior vice president of investment and product management with
GFWM. Lester also cited the importance of alternatives in building
a diversified portfolio for clients, but added that advisors need
to be cautious. "You need to have clear expectations and goals
about the risks you're trying to mitigate," she said. Investors are
demanding huge risk premiums, she said, and J.P. Morgan is now
overweight in risk assets. "It's still an environment constructive
for risk," she said. A huge deleveraging process is under way
"across the market landscape that is ongoing, and will take another
three to five years to be completed," Lester said. "Corporations
have finished it, individuals are part way through it, and
governments haven't started it," she said."We haven't seen the
repudiation of (government) debt yet." Sundt discussed the growth
of alternatives, specifically addressing the need for investment
portfolios to include broader diversification into non-correlated
assets. "Advisors want more alternatives, but don't understand
them," he said. "They need to find a trusted source to get educated
and find a platform of managers to choose from." The three
alternative strategies Altegris currently favors include managed
futures, global macro and long-short equity, according to Sundt.
Managed futures managers are trend followers, he said, who can go
long or short in four major asset classes: stock indices, sovereign
debt, currencies and commodities. "(Managed futures) is a
diversifier with zero correlation to equities," Sundt said. "It's
an all weather portfolio that can survive various markets." Global
macro managers are fundamental managers who can go long or short on
sovereign debt and currencies. Long-short equity managers are stock
pickers who can go long or short on individual stocks. Altegris has
historically provided alternative investments chiefly to
institutions, high-net-worth individuals and family offices, but it
is now also marketing alternatives to wealth managers and their
clients, Sundt said. Thirty percent of institutions have assets in
alternatives, noted Sundt, who predicted they will be considered
regular investments in the retail investment market within three to
five years. Abelson discussed GFWM's new focused alternative
strategy platform, encompassing managed futures, which advisors can
use in combination with other asset allocation approaches. GFWM
introduced the platform in February. "We see significant adoption
of the strategy by advisors into portfolios with typically five to
fifteen percent of client assets allocated to the strategy,"
Abelson said. "Investors have achieved as much diversification from
combining different allocation approaches, for example, strategic
asset allocation and tactical asset allocation, as they could from
combining disparate asset classes. "It gives advisors the
capability to combine these various approaches and empowers them to
deliver better solutions," he added. GFWM used the occasion to
announce plans to roll out a series of mutual funds with four
approaches to asset allocation: strategic, tactical constrained,
tactical unconstrained and absolute return. GFWM, based in Pleasant
Hill, Calif., has about $20 billion in assets under management.
Core clients include more than 6,000 mostly independent advisors
and RIAs nationwide. The Altegris Group of Companies, headquartered
in La Jolla, Calif., with about $2 billion in AUMand $800 million
in institutional clearing assets, was acquired by Genworth
Financial in September. -30-
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