Financial advisors looking to use liquid alternatives to enhance their clients’ portfolios are in very good hands: Those who work in the space are committed to putting together the very best products and solutions possible by combing through various strategies with discipline, rigor and the right amount of due diligence, and today, there are a large number of options that advisors can choose from.
The liquid alternative space is large and diversified, and spans anything from commodities and natural resources, to real estate, managed futures and multi-strategy/multi-manager funds. But Bill Miller, chief investment officer of Brinker Capital, who spoke at a panel discussion on the role of liquid alts in portfolio construction at Envestnet’s 14th Annual Advisor Summit in Chicago, urges advisors to “keep it simple” and not get bogged down in the technical details and jargon associated with these products when presenting them to clients. While advisors should certainly understand what liquid alternatives are and how they work, they’re best described to clients as “a bond substitute” or an “equity substitute,” he says.
And in the most basic way, they are, since the purpose of liquid alts is to provide noncorrelated returns to an investment portfolio and thereby improve its outcomes.
In 2013, the liquid alternative industry grew by 43.9%, says James St. Aubin, managing director at Wilshire Funds Management, and it’s slated to grow even further as interest in this space continues to increase. Multi-alternative, multi-strategy and multi-manager funds are among the most sought-after liquid alts, he says, and he’s expecting continued growth in this area.