Caroline Cai from Pzena Investment Management speaks to The Inside Network’s James Dunn for our IN60 series. The Inside Adviser
The historic outperformance of big tech stocks in the US may look like a global outlier, but many developed markets (including ours) have high levels of concentration risk. That may not be the case for long, with a likely softening interest rate environment set to re-order indexes around the world.
Alts performance mixed after tough quarter
Alternative investments are gaining popularity, mainly due to their low correlation to more traditional assets such as stocks and bonds. They also don’t fall into conventional asset categories and have been lumped together with a range of investments that tend to be less liquid and harder to value than the traditional equities type investment.
They provide an opportunity for portfolio diversification and reduce the overall risk exposure while generating a positive return. These types of funds are also a great hedge against inflation, which would be an ideal investment taking into account the recent inflation rate of 51 percent. The alternative investments category however is a broad one. Alternative investments include private equity, venture capital, hedge funds, managed futures and collectables like art and antiques. Commodities and real estate can also be classified as alternative investments.
Looking at the table above, we have collated five of the top performing alternatives together with five of the worst performing for the calendar year. In top spot was Anthony Murphy’s, Lucerne Alternative Investment Fund (LAIF) which is a fund of funds structured portfolio that directs its clients’ funds into a range of strategies such as global long short equities, digital currencies and various impact investment strategies.
The company said its “largest attributors were in systematic trend following, resources and Australian long/short strategies. Systematic trend following and resources were the beneficiaries of increased prices in oil, gas, and other commodities. The Australian long/short strategy outperformed the ASX200 due to specific stock selection.” Its biggest detractors were global long short equities and digital currencies. Much of this was due to a weakening US dollar. Overall the fund returned 23.77 percent for the calendar year.
In second place was Bronte Capital’s Amalthea fund which is a long, short fund which managed to return 19.49 percent to its investors. Worthy of a mention was Dalton Street Market Neutral Trust which returned 17.30 percent. The fund aims to deliver uncorrelated and asymmetric absolute return, via a range of alternative investment strategies. By holding a diversified pool of alternative strategies, the manager can produce positive returns during major market dislocations. The perfect type of fund in a clients portfolio to protect against a black swan event, such as Covid-19.
What was interesting is the underperformance by the BetaShares Crypto Innovators fund. At the end of the calendar year, the fund was down some 44.16 percent, its falls exacerbated earlier in the year when Bitcoin went into free fall touching US$33k on January 24. Since then, Bitcoin hasn’t really recovered and is trading near its lows at US$38,480. Bitcoin is considered a risk assets, so these sorts of falls are expected and their price can move under almost any market condition.
