Alternative assets cover a variety of opportunities not all of which offer reduced volatility, according to a range of wealth managers.
Rory Maguire, managing director at Fundhouse, said he was a sceptic when it came to the volatility-dampening potential of many alternative assets.
He said: “Over time, we believe that alternatives (like absolute return) bring a few challenges to investors/asset allocators. First, the managers of these absolute return funds change their views so frequently, that it is hard to know what insurance policy you are actually buying. Is it an equity hedge? Is it a bond hedge? If it changes that frequently, it is hard to say.
“This places the investor in a predicament when doing portfolio construction, especially if they require each investment to play a precise role in the portfolio. They can invest on the hope that the asset is uncorrelated and works when they need it to. Or, they can avoid it. Historically, we have taken the latter approach.
“Second, costs can be high. And, finally, our fund research has rated many absolute return strategies negatively and this reduces the odds of finding a successful strategy (in our experience). When adding all these factors together, we generally avoid this sector when investing in our model portfolios.”
Part of the rationale for owning alternative assets is they can offer returns unlinked with those of equities or bonds, and perform best when those asset classes are doing less well.