October 14, 2011

Natixis Portfolio Managers Recite Alternatives Mantra in Face of Investor Apathy

Absolute return, hedged equity, emerging markets seen as protection against volatility

The question was risk and the answer was alternative investments as Natixis Global Asset Management hosted a media luncheon on Thursday at Per Se in New York.

According to a Natixis survey also released Thursday, nearly half of American investors fear losing their money due to current market volatility. Yet four in 10 are not interested in alternative products and strategies that could potentially diversify portfolio returns, says the French-owned firm with $773 billion of assets under management.

This is a problem for advisors, said Tracey Flaherty, senior vice president of retirement strategy at Natixis. “Important alternatives conversations are not taking place with clients,” Flaherty said, asserting that “durable” investment portfolios that incorporate alternatives such as absolute return, hedged equity and emerging markets can provide returns uncorrelated to the markets’ gyrations.

Three portfolio managers from Natixis’ multi-boutique line-up offered their thoughts on alternative investments that can help advisors manage risk:

Matthew Eagan, co-portfolio manager of the Loomis Sayles Absolute Strategies Fund: Eagan said that from where he stands as a fixed-income market participant, he doesn’t know when interest rates will rise, “but I don’t want to read about it in the paper, either.” Because this is a transitioning market, he said, investors face the risk of reinvesting coupons as rates head lower. To avoid that trap, Eagan maintains as much flexibility as he can with a global absolute return-oriented fixed-income strategy, using Libor as his benchmark and shorting when necessary. “The world has changed a lot,” he noted, saying there are diversification benefits in emerging markets.

Michael Buckius, co-portfolio manager of the Gateway Fund: Buckius has seen a big appetite for sources of alpha over the last five years from his biggest constituency—sophisticated RIAs with a lot of portfolio-building tools at their disposal. He also has seen growing interest in alternatives as many advisors’ clients near retirement age. Gateway builds its investment strategy by analyzing the VIX Index—popularly known as “the fear index”—and uses options to hedge a broad market portfolio.

Francisco Alzuru, portfolio manager of the Hansberger Emerging Latin America Fund: Alzuru cautioned that investors have been unwisely fleeing Latin American markets during this period of turmoil. While Brazilian earnings have recently been cut to 14% from 30%, “investors should be buying into Latin America,” Alzuru said. The trouble is that the region is “the ultimate hostage of volatility in the global markets,” he said, adding, “Remember, it’s not Latin America countries that are creating the global markets crisis.”

Read about Oppenheimer Managing Director Stephen Todd Walker’s ‘Wave Theory for Alternative Investments’ at AdvisorOne.com

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