With concerns growing over historically low bond yields, elevated equity valuations and increased volatility across the board, liquid alternatives can help to build robust portfolios fit to withstand a range of different market environments. This is something investors cannot afford to ignore.
So, what are liquid alternatives?
- Aim to generate a total or absolute return
- Typically benchmark unconstrained
- Can take long and short positions using leverage
- Provides access to traditional alternative asset classes in a liquid form
- Offers daily or bi-weekly dealing
- Helps diversify a portfolio
- Provides protection when markets are distressed
Liquid alternatives are structured within a mutual fund format which have a number of benefits including:
- Greater transparency
- Minimum investment levels and concentration limits
- Stronger governance
How do liquid alternatives work?
Liquid alternatives seek out alternative sources of alpha and strategies that show reduced correlation with broader financial markets. Therefore, they employ certain investment techniques that differ from conventional funds.
Applying liquid alternatives
Blending liquid alternative strategies with a traditional asset allocation, as opposed to allocating to a separate alternatives ‘bucket’, can help investors produce a more balanced and diversified portfolio that generates superior risk-adjusted returns.
|Equity alternatives||Fixed income alternatives||Other alternatives|
|Equity alternatives can be used in a number of ways within a portfolio. Some strategies seek to take advantage of equity volatility while others are independent of market direction.||
Fixed income alternatives can help to provide valuable protection by managing drawdown risks while still offering the potential to generate positive returns.
Investors can enhance portfolio diversification by using assets with a unique set of risk/return characteristics that are uncorrelated from conventional financial markets.
Schroders has a wealth of experience and expertise in liquid alternatives. We manage a range of liquid alternative strategies across a variety of different asset classes, allowing investors to create increasingly nuanced and targeted portfolios.
We also offer a leading platform of externally-managed hedge funds through our GAIA range. Schroder GAIA is a regulated, liquid and transparent way for investors to access hedge fund strategies within a UCITS framework.