Because investors today want stable returns with less risk!
The investment landscape has changed significantly over the past few years. Traditional investment strategies now face significant challenges to earn consistent returns, while avoiding growing financial risks. Conversely, institutional-style alternative investment opportunities have become much more widely available. These types of investments can add to returns and reduce risk in a properly constructed portfolio.
In order to safely navigate your portfolio through these challenging times, it is essential to have access to a more diversified mix of investments. A more diversified portfolio has a higher probability of delivering you the risk-adjusted returns you need. Over a full market cycle we expect Alitis’ diversified, multi-asset class approach, to offer significantly more protection in market downturns and to out-perform most other traditional strategies.
To really understand why you should strongly consider a Portfolio Manager like Alitis you must first understand what the potential problems are with traditional investment strategies you may currently be holding
If your portfolio consists of mutual funds, segregated funds, or a managed account at a large investment dealer, there is a very good chance that all of your money is concentrated into just two general asset classes, publicly traded stocks and publicly traded bonds. History has shown that when things go wrong in the stock market all stocks tend to suffer. When it comes to bonds, interest rates are at historically low yields so most bonds offer negative returns after taxes, fees and inflation. Additionally, bonds face capital losses should interest rates rise sharply as they did in the summer of 2013.
So, if you drill down into your portfolio and discover that most or all of your money is invested in stocks and bonds we believe you have a problem. Here is a little more insight into what is really wrong with this basic two asset class strategy:
Stocks – Future stock market returns are unlikely to be as high as they were in the past when the credit cycle was building and debt-driven consumption was fueling the economies of the developed countries. Mid-single digit returns, before fees, are likely the new global norm, and major event risk is always with us. The U.S. and other developed economies cannot increase their debt endlessly without a major negative consequence. There is no upside to a growing debt problem and stock markets ultimately reflect this risk. Furthermore, the global growth cycle appears to be slowing and global stock markets appear to have tapped out.
Bonds – In a high debt, benign growth economic environment, interest rates are likely to stay very low for many years. Given these low interest rates, the fixed income portion of your mutual fund or managed portfolio could face negative real returns after accounting for inflation, investment management fees and taxes.
An example: Typical Bond Fund
Current Bond Yield: 2.0%
Less Inflation: -1.5%
Less Fees*: -1.9%
Net Return: -1.4%
The returns would be even less if taxes had to be paid on interest earned.
(*Median MER for the Canadian Fixed Income category is 1.96% according to the December 31, 2013 report from Globefund.com)
Example: Typical Balanced Canadian Mutual Fund
Balanced mutual funds are the largest category of mutual funds in Canada and the median Management Expense Ratio (MER) is in the 2.54%. (*Median MER for the Canadian Neutral Balanced category is 2.54% according to the December 31, 2013 report from Globefund.com)
As an example, let’s assume a Balanced Fund holds 60% in stocks and 40% in Bonds.
Bond Yield: 2.0%
Less Inflation -1.5%
Less Fees -2.5%
Return on Bonds -2.0%
With the mixed outlook for stocks and the bond component delivering negatives returns, it is easy to understand why these Balanced Funds are likely to deliver below average returns in the foreseeable future.