3 Major Portfolio Risks and How Liquid Alts Can Help

“Liquid alternative funds are increasingly popular as rates rise and no one wants bonds anymore,” says Ben Warwick in typically straightforward (harsh) style.

The no-nonsense CEO of Denver-based alternative investment shop Quantitative Equity Strategies and ThinkAdvisor contributor argues that advisors are certainly more interested in the asset class as their clients catch on to the need for noncorrelated products and strategies. But how is it done; how does the advisor intelligently allocate these resources?

“Let’s back up and define what we mean by alternative investments in this instance,” he professorially begins. “Alternative investments are any nontraditional investment (not pure stocks or bonds). They are usually considered a portfolio diversifier instead of a return driver and are typically not highly correlated with equities or fixed income securities. They include hedged strategies, exotic beta, and other non-long-only products.”

With that out of the way, he goes on to make a strong case for aforementioned liquid alternatives, mainly delivered to retail clients in a mutual fund structure.

“The advantage, at least to the average retail client, is that fact that no K-1s are generated, they enjoy daily liquidity, more transparency, fees can be reasonable and usually there is no minimum net worth requirement,” he quickly ticks off.

Like nearly all investments, he adds. alternatives are typically evaluated based on the one factor that is not indicative of future results: their past results.

“Too often people try to sell them based off of performance indices that are not even investible,” he notes.

Warwick then mentions what he considers the three most important risks to any investment portfolio, and how alternatives can help manage each.