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First comes love, then come liquid alternatives

October 30th, 2014 by

The beautiful little bundle of strategies you never knew about - until now


When a mutual fund and a hedge fund get together, retail investors cash in.

Indeed, it's an investment strategy making great strides in the stock market - and earning a devoted following along the way. Mainstream investors are finding success with a set of strategies you might not have heard of: liquid alternatives.

A little background 

Traditional alternatives have been the fastest-growing category among institutional and high net worth investors across the U.S. and globally over the past decade. But sadly, during much of this growth, regular joe retail investors have had to sit by the sidelines and watch. But now, through liquid alternatives, the everyday investor is able to access alternative strategies and the potential benefits they hold - in the familiar structure of a mutual fund.

In short, these new(ish) strategies make mutual funds act "hedge" all while giving investors greater access to smart money advantages. There’s a reason these strategies have been making a splash in the market.

Here's why...

Conscious coupling

The objective of the liquid alternative strategy category is to produce differentiated returns that diversify a portfolio of traditional asset classes (like stocks and bonds) while smoothing volatility and providing enhanced risk reduction as well as protection against drawdowns in the market.

Liquid alternatives themselves are a relatively new category (remember - it’s traditional alternatives that have seen massive growth by institutional and high net worth investors), but word is spreading quickly. It helps that these strategies are based on an already proven vehicle - those traditional alternatives we mentioned earlier (just think of these as the grandmothers of alternatives).

Traditional alternative strategies started becoming an increasing focus for institutional and high net worth investors in 2005 and onwards as they looked to add diversification to their portfolios.

Since then (and more so in recent years), institutions and high net worth investors have been allocating a higher percentage of their portfolios to alternatives, recognizing the benefits this category offers, such as the ability to smooth and reduce volatility as well as provide protection on the downside. Between 2005 and 2007, global alternative assets under management nearly doubled, from $2.9 trillion to $5.7 trillion.

But over the past five years, we’ve seen a new investment vehicle flooding the U.S. market that targets retail investors/advisors: liquid alternatives. These funds came about as a way to offer investors the advantages of traditional alternatives, but with the benefits of a mutual fund structure.

Don’t believe it? Just ask one expert for Reuters, who wrote: “After record annual inflows exceeding $40 billion in 2013, the appetite for U.S. alternative mutual funds, also known as hedged mutual funds or liquid alternatives, has been insatiable.” Retail investors are soaking it up.

Of course, it’s important to keep in mind that these funds are actively managed; you need to know and trust your portfolio manager. 

A Canadian alternative

Although liquid alternatives have made their name primarily in the United States, the time has come for Canadian investors to cash in with these strategies. When you look at Aston Hill Asset Management, you might note that they’re one of the largest providers of open-ended alternative mutual funds, in terms of assets under management (AUM). You might be interested to hear that they’ve been employing liquid alternative strategies for years and are experts in this type of asset management. (They’ve even launched a liquid alternatives education centre to show you why.)

But it’s the numbers where you’ll really want to pay attention. The Aston Hill Capital Growth Fund has provided 83 percent of the returns of the U.S. stock market with a third less volatility. Aside from providing stability in traditional markets, enhanced protection on the downside, and the potential to improve a traditional portfolio’s risk-adjusted performance, Aston Hill manages their liquid alternative funds with the complete transparency required by regulated Canadian mutual funds regarding vehicles, strategy, and risk.

A new vehicle to preserve wealth

These are the questions to raise with your financial advisor. Though previously only available to institutional and high net worth investors, alternative strategies wrapped in a mutual fund are proving to provide the mainstream market with a new vehicle with which to preserve wealth. 

The ultimate aim - a happily ever after for small retail investors ready to go alternative.



Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Performance referenced for the Fund is from when the portfolio manager took over in Nov-2010. Historical returns through Sep. 30, 2014: 1 yr = 9.0 percent, 3 yr = 13.1 percent, 5 yr = 16.2 percent, 10 yr = 5.2 percent, Inception (Nov-2003) = 7.2 percent.

Source: Aston Hill Asset Management Inc.

Jun 28 2017 10:36pm

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