The asset allocation of a portfolio helps drive its long-term performance results. Rebalancing is also critical and is especially important in today’s market given the extended bull market in stocks. A traditional 60/40 (equities/fixed income, respectively) portfolio would likely be 70/30 without rebalancing after a prolonged equity bull market. The outsized equity allocation could then be detrimental to returns should the next recession strike. In light of this coupled with current low yields on traditional core fixed income securities, many investors and their advisory teams have been ramping-up research on liquid alternative investments and the role they can play in portfolio diversification.
Alternative investments can be a complement to traditional equity and fixed income strategies which look to diversify risk and improve long-term risk-adjusted returns. These hedge fund-like products can offer better liquidity with a focus on low, or negative, correlation to stocks and bonds. Market neutral funds are a good example. They look to generate positive performance in any market environment, which mitigates risk in down markets.
If you are interested in learning about adding a market neutral allocation to a traditional 60/40 portfolio, please join us for a webinar on Thursday, November 15th at 1pm ET.
Click here to register for the webinar!