Alternative assets can address the flaws in traditional portfolio construction, according to Ed Cole, head of multi-strategy equities at Man Group, who sat in the hot seat in this week’s Asset Allocator podcast.
When asked if he believes alternative assets can remedy some of the flaws in traditional portfolio construction, he said: “Absolutely we do. We’re an alternative asset manager so, guess what, we think that’s part of the answer.
“I think you have to be very careful about what alternative assets are. If you look at what exists inside most people’s universe of alternative assets, it includes privates, which have a role, but which may not be so diversifying in the next cycle as they’ve been over the last 20 years.
“It also includes, often particularly in the UK, unit trusts, investment trusts. Those are often long-duration assets wrapped up into equity-like vehicles. And they, as we know in 2022, had a duration exposure. So let’s be clear about what alternative means. Alternative to us means something that delivers you a dependable diversified return versus traditional risk-premium bonds and equities.”
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Cole said it is important that alternative assets be liquid, “because you have to be able to liquidate them when you have funding needs in the rest of your portfolio”.
Ultimately, he stressed that if investors can find alternative assets that deliver a low beta to equities and bonds and can pay a reasonable expected return irrespective of how traditional assets are performing, then “they’ve got an incredibly important role to play”.
He also discussed where investors can add value in fixed income and the popularity of diversification.
The Asset Allocator podcast is a weekly series aimed at discretionary fund managers, fund selectors and wealth managers, providing insight into the issues that drive investment decisions.
It is available on Spotify, Apple Podcasts, Acast and most other major podcast platforms