When Genworth announced its acquisition of alternatives investment provider Altegris Investments last October, Gurinder Ahluwalia said the move was made in response to the expressed wish of its RIA and broker-dealer advisor clients for access to alternatives. The move has appeared to pay off.
In a media roundtable in New York on Tuesday, Ahluwalia (left), CEO of Genworth Financial Wealth Management (GWFM), mentioned that since the platform’s launch in February it had attracted $100 million in assets.
There are 12 allocation strategies on the platform, said Michael Abelson, GWFM’s senior VP of Investment and product management, and the success of the platform reflected the fact, he said, “that alternatives are becoming a more important part of advisors’ practices.”
Jon Sundt, president and CEO of Altegris, predicted that “three to five years from now, alternatives will be seen as ‘regular’—just as they are considered ‘regular’ in institutions and among the high net worth.”
The fourth member of the roundtable, Anne Lester of J.P. Morgan Asset Management’s Global Multi-Asset Group (GMAG), pointed out that for advisors building portfolios, “it’s always about asking the right question of why you’re diversifying,” and then “sizing those exposures” that provide diversification.
While many observers worried that Modern Portfolio Theory’s diversification mantra failed during the 2008-2009 economic and markets crisis, Sundt (left) pointed out that certain alternative strategies—namely managed futures, global macro, and long/short equity—“all made money during the crisis." Sundt argued that “it wasn’t the case that Modern Portfolio Theory didn’t work” during the crisis, but that investors hadn’t achieved true diversification.
Looking just at the performance of managed futures, which Sundt says displays near zero correlation with the equity markets, Sundt said that during the “lost decade” of equity returns, an investment in managed futures would have performed quite well on an absolute basis, not just beaten the equities market's return.
At Altegris, Sundt said, the company’s “80-strong” analysts looked for the best alternatives managers, who needed to exhibit long/short investing acumen, have a flexible investing mandate and be in liquid investments. Altegris is working on bringing some alternatives managers into '40 Act mutual funds, which he said have become
more appealing to those alternatives managers while the increased visibility of those mutual funds’ holdings would be more appealing to advisors.
Answering a question about the flexible investing mandate of Altegris-approved managers in a conversation after the roundtable, Sundt explained that those managers are “flexible within their style,” so advisors choosing those managers could find comfort that they will stay within their announced strategies. Moreover, Sundt said that “We recommend that you have a diversified alternatives” strategy” as well in your clients’ portfolios.
Still Deleveraging, and More Volatility Ahead
In addition to expounding on the place of alternatives in a portfolio, Lester and Sundt commented on where the markets and the economy stand in the recovery. “We’re several years into a multi-year deleveraging process,” Lester said, “that has been painful and will continue to be.” She expects the deleveraging to last for another three to five years, resulting in “shorter, sharper market cycles.” While consumers are far “healthier” than they were and are “far into the deleveraging process,” and while “we see a V-shaped recovery in corporate profits,” she lamented the fact that “government deleveraging hasn’t started yet.”
She also worries that “we’re nearing the end of the recovery, despite plenty of “dry corporate powder” and signs of a pickup in M&A activity, and even the market’s quick recovery from the Japanese disaster, all of of which she sees as positives for the market.
Sundt argued that Ben Bernanke's “Jackson Hole Hail Mary,” also known as QE2, is an “experiment we borrowed from the Japanese.” Corporate profits, he said, are “surging but also mean reverting.” Risk remains in the market, he expects inflation to come back into the market, and while there’s a “tail wind for equities” he also expects plenty of volatility as well in the next six to 12 months.
Speaking further of consumers’ attitudes, and whether they will continue to save at the higher rates that have been in evidence since the crisis, Lester admitted she couldn’t predict whether that would be a permanent or temporary behavior pattern. She did tell a story that provided evidence that many investors remain gun-shy when it comes to investing and a recovery. “I was speaking at an end client conference in California last week,” she recalled, and asked the mostly older wealthy attendees whether they felt the recession was over. “Not one hand was raised,” she said.