Upcoming WP Advisor Connect event will cover the evolution of alts and one speaker explains why that's a crucial story to know
Alternative investing has changed a lot in the past decade. Any casual observer could tell you that. The scope and scale of that change, though, can stagger even some seasoned analysts.
The wide-ranging ‘asset class,’ once the sole purview of the accredited investor, has been democratized through mutual funds and ETFs and made accessible to the retail client. Within that shift, top-tier management talents are being made more available, new strategies are being innovated, and new asset groups as well as packages are being rolled out. The shift has been so dramatic as to force a reconsideration of the 60/40 portfolio weighting that’s been treated as gospel for retail investors for decades. One speaker at the upcoming WP Advisor Connect on the Rise of Alternative Investments says that advisors who are skeptical, curious, or even gung-ho about alts should learn the history of alt investing to better communicate its opportunities to their clients.
“I think one of the biggest questions on investors minds is ‘why change?’,” says Allan Seychuk, VP and senior investment director at Mackenzie Investments and one of our speakers at WP Advisor Connect. “The 60/40 portfolio has done well so why change it. But when you look at what highly sophisticated investors have been doing for quite some time, the biggest change in their asset allocation over the past two decades has been a move away from sole reliance on ‘traditional’ stocks and bonds into different asset classes and different strategies.”
Those institutional investors, Seychuk says, have enjoyed uncorrelated returns and have reduced their exposure to volatility in equity markets and interest rates. Retail investors, he says, are still easily victimized by those risks. Volatility, too, often creates a negative feedback loop where retail investors pull out of the market when they see their life savings at risk, that makes it harder and harder for them to reinvest.
Fixed income yields are near zero, too, at a time when people are living longer and longer into their retirement. People approaching retirement who should be de-risking their portfolios are actually adding risk to boost yield and generate necessary returns.
Its in these situations, Seychuk says, where alternatives can help. He says that in the past years of alts innovation, alternative products have moved well clear of the old conception of risky behaviours, large amounts of leverage, and opaque, expensive, strategies.
At Mackenzie, Seychuk says his job is to dispel those myths by showing investors that they understand the alts universe better than they thought they did. Real estate, for example, is an example of an “alternative asset class” almost all Canadian investors are familiar with. Leverage, he says, might seem risky but layers of Canadian regulation protect investors from the worst of unbridled leverage. Alts strategies like shorts are a key tool for generating returns in down markets and during times of volatility. This uncertain moment may be a key time to deploy that strategy.
Seychuk’s message is to get educated. He says that understanding the history and evolution of alts is key to both making the right investments and having the right conversations with clients. Even advisors who remain skeptical of alts should take time to learn as the landscape may have changed a great deal since they made up their minds.
“The marketplace for alternatives has evolved significantly in the past few years and advisors may be surprised at the wide range of options available to them,” Seychuk says. “They should realize that they can use alternatives in a wide variety of different ways.”
To learn about the evolution of alternatives and hear from Allan Seychuk and other thought leaders in the alts space, register for WP Advisor Connect now.
