Envestnet Inc. announced Wednesday that it had added Brinker Capital Inc.’s Crystal Strategy I absolute return portfolio to its separately managed account platform. Crystal Strategy I uses a range of investment vehicles—including individual equities, ETFs, ETNs, open- and closed-end mutual funds and MLPs—across six major asset classes with the goal of preserving client capital in down markets while capturing appreciation in up markets.
John Coyne (left), Brinker Capital’s president, said in an interview with AdvisorOne on Wednesday that he believed Crystal Strategy 1 was “the first absolute return strategy in the SMA space.” Coyne said the portfolio is “100% transparent, with daily transparency, 100% liquid, cost effective, still tactical and a multi-sector unconstrained strategy.” Putting the strategy in an SMA rather than a hedge fund, for instance, makes it “a very compelling story for advisors and investors that is unique in the marketplace.” Crystal Strategy I, Coyne said, “is a vehicle that investors can look at every night and see what they own.”
Coyne said that the goals of the strategy “are not dramatically different than other global macro or absolute return strategies, providing equity-like returns over a market cycle but with moderate volatility.” The strategy starts with a “null hypothesis,” meaning that in constructing the concentrated portfolio, no single asset class receives an underweight or overweight at the beginning. Merging top-down macroeconomic trends with bottom-up strategy and stock selection, it is only after considering valuation, technical trends, sentiment and risks that Brinker strategically overweights those areas that its management team believes will generate strong risk-adjusted returns over a three-year time horizon.
The strategy is meant to be non-correlated to the S&P 500, had 37 positions and a yield of 1.73% as of April 19, 2011, had attracted $44 million in assets as of March 31, 2011, and has an investment minimum of $100,000.
Coyne said the strategy “evolved from the frustration of advisors” coming out of the 2008-2009 markets and economic crisis. “They didn’t understand what they owned, the lock up periods, that liquidity could be at the discretion of the general partner.” In determining the best vehicle for the strategy, Coyne said “we looked carefully at a ‘40 Act fund,” but concluded that “the SMA was the most flexible vehicle” to provide the transparency and liquidity needs of advisors on behalf of their clients, while providing absolute return with a focus on risk management.
Bill Crager, Envestnet’s president, said in an AdvisorOne interview that “the Brinker team has a great track record from an investment management perspective, and it’s a solution that the marketplace needs … to achieve alpha but protect against risk,” and that any individual