Are you picking the right alternative strategies to meet your goals?

“So, we dug a little deeper and what we found is, because of the wide dispersion within those categories, there are some fantastic strategies that focus on diversification and stability. So, it points to the need to look under the hood – unlike traditional assets, where you can start by filtering by category.”

Given that, Picton Mahoney encouraged advisors to create customer peer groups, and filter based on high-level characteristics that align strategies with their goals.

“Before you have to get into manager selection or evaluating strategy, invest the time to establish a clear objective for why you’re making the allocation. If you can nail down the purpose of the alternative program, you’re going to have a much better time of identifying strategies that are the most beneficial to you,” he said, noting it’s also wise for advisors get support from alternative asset managers to help them with the selection process since different products deliver different results on risk mitigation, diversification, or returns.

“The challenge of those three goals is somewhat oppositional,” he said. “There’s a trade-off between them. So, if you want more of one, you might end up getting flak from another.”

Wilson said the fact that the highest net loads have gone into the alternative credit and alternative equity categories suggests advisors want to modify return – even though some of the top selling strategies in those categories have been more focused on risk mitigation. But he said advisors now are putting absolute return strategies front and centre because, “in the current market environment, they’re realizing that there can be a high correlation between directional strategies. So, there’s a need to have a layer within the portfolio that is more dependent on manager skill and less dependent on changes in the level of direction for markets.”

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