John Templeton, one of the world’s greatest investors, once famously said, “If you want to have a better performance than the crowd, you must do things differently from the crowd.” Templeton’s wisdom is particularly pertinent for today’s investors, who continue to pile desperately into overpriced stocks and property markets in the search for yield among record-low global interest rates.
As asset prices are pushed forever higher, despite the global pandemic-led recession, the risk of a severe market crash that devastates portfolios mounts. Those nearing or in retirement can little afford large losses, which can also translate into a shrinking bottom line for advice firms that are remunerated based on funds under management. And more so should clients leave after losing confidence in the value of advice.
Firms at particular risk are those that continue to employ strategic asset allocation, which obliges clients to ride markets up and down in the belief that they will eventually resume their upward path. This method, which hugs market benchmarks and sees being different as the actual risk, is well suited to bull markets. However, it can fail investors dismally during market sell offs.
Advisors that want to avoid following the crowd amid today’s drastically changed market environment can instead achieve attractive absolute returns that are in line with their clients’ objectives, while also protecting their capital. This can be accomplished by moving away from increasingly risky traditional asset classes that depend on a sound economy for growth, such as equities, property and fixed income, into alternative assets and strategies.
This shift can help build a truly diversified portfolio with a low correlation to typical asset allocations and allow for the possibility of positive returns in any type of market. For example, precious metals and currencies can hedge against market downturns and, at the same time, deliver decent returns. Long/short strategies, which invest in high-quality under-priced companies while shorting low-quality stocks, such as those suspected of fraud, can capture additional returns that are unavailable in long-only investing. Other suitable strategies that have little correlation with the broader market include market neutral funds, which pair long and short positions to benefit from pricing arbitrage, managed futures, which can profit from falling markets, and merger arbitrage.
Advisors that decide to incorporate alternative assets and strategies in their client portfolios should ensure they chose from a range of carefully selected investments so as to avoid concentration risk, as they would when constructing a portfolio from traditional asset classes. It is also important to utilise active asset management so as to respond to market conditions; a critical aspect of avoiding large losses.
These factors, in addition to the greater complexity of alternative assets compared with conventional investments, can create barriers for small and medium advice firms, which often lack the time and resources that such an approach entails. This is where Dynamic Asset can help.
We offer an efficient and scalable whole-of-business solution that can be adapted to suit your business. Simply choose from a range of diversified multi-strategy portfolios that are configured to deliver specific return targets within a designated time frame, irrespective of market conditions. Meanwhile, Dynamic Asset’s specialised investment managers will oversee the investments, deal with portfolio administration and provide transparent and timely reporting, allowing you to focus on developing strong client-focused relationships and growing your business.
If you’re eager to do things differently, contact Dynamic Asset today.
