Financial Advisors

New Data: An Alternative to Liquid Alternatives

Liquid alternatives graphic

Liquid alternatives are darlings of diversification and downside protection for some advisors, many of whom looked in the rear-view mirror during and after the Great Recession and saw the need for a new way to manage risk.

Now that liquid alts have outgrown adolescence and had ample opportunity to prove their mettle, we examined their performance in a just-released primer, “An Alternative to Liquid Alternatives.”

The Data Looks Good Over the Long Haul

There is great variety when it comes to the investments classified as liquid alts, from multi-strat to long/short strategies, and managed futures. Over the long term (we started in 2000 for our analysis), most liquid alt indexes have achieved the desired portfolio benefits when compared against traditional asset classes.

You know there’s a “but” coming, right?

But...Accessibility Began More Recently

Here’s the problem: Many liquid alt investments have been generally inaccessible to advisory clients as a 10-20% allocation until recently. That’s why our primer also digs into the performance of liquid alt funds that investors can more easily access.

Our data highlights how liquid alts, despite perceived successes, still face challenges, including:

  • Significant tracking error relative to perceived investor expectations and underlying indexes
  • High expenses
  • Difficulty getting clients to “sit with” the strategies during bull markets

Can you sense that there’s one more “but” coming right about now?

Another ‘But’...At What Cost?

Here’s the thing: At Blueprint, we don’t think diversification and downside protection require esoteric-sounding strategies that feel intimidating to your clients.

That’s why our primer also compares:

  • A traditional liquid alt strategy
  • An “alternative to liquid alternatives” that is naturally diversified across eight familiar asset classes and uses trend following to dynamically adapt the portfolio allocation as market conditions change

The results — in terms of correlation to equities, drawdown profile, risk-adjusted return, and expenses — might surprise you.

I invite you to take a look by downloading the primer.

Blueprint Investment Partners is an investment adviser registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information please visit adviserinfo.sec.gov and search for our firm name.

Past performance is not indicative of future results. The material above has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation.

Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Blueprint.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Jon Robinson

Jon Robinson is a co-founder and the CEO of Blueprint Investment Partners and Blueprint Fund Management.  As CEO, Jon drives overall strategy for each firm with a focus towards helping others achieve their full potential through building and preserving a culture of honesty, integrity, and generosity.  His passion is helping investors achieve better investment outcomes by identifying and circumventing their biases through education and transparency.

Read Jon's Bio