PARTING SHOT

An alternative strategy used with other funds might reduce a client ’ s stress .

HEN ASKED HIS OPINION ABOUT THE STOCK MARket , J . P . Morgan , the influential American financier and banker , allegedly quipped , “ The market will fluctuate .”

This succinct statement serves as a reminder that market gyrations are a natural part of investing . Moreover , the stock market is inherently volatile and unpredictable . For that reason , commonsense tactics that reduce risk and the possibility of severe setbacks merit attention . Alternative investments can offer several benefits to this end , since they ’ re different from traditional investments like stocks and bonds .

The idea of using alts in portfolios is proven . David Swensen , the late manager of Yale ’ s endowment , pioneered the “ Yale Model ,” which made regular use of alternative investments like private equity , real assets and venture capital . His approach delivered legendary results that helped the endowment significantly outperform traditional endowment models .

In the exchange-traded fund market , the alts products can run the gamut — focusing on things as disparate as commodities strategies , managed futures , long / short equity and other themes . Since these themes can vary so much ( in both approach and asset coverage ), a multi-fund solution is often better than a one-trick-pony application .

“ When I build alts portfolios , I do it with four or five funds ,” says Shana Sissel , the founder of Banríon Capital Management , an alternatives platform . “ You should build it like building equity and fixed-income exposure . You shouldn ’ t just use one fund .”

The stock market is inherently volatile and unpredictable . For that reason , commonsense tactics that reduce risk and the possibility of severe setbacks merit attention .

By using a strategic combination of several alternative funds , the potential benefits are that the client owns funds that aren ’ t correlated to one another or broader financial markets .

Let ’ s analyze a few ETFs that play in the alternatives class .

AGF U . S . Market Neutral Anti-Beta Fund ( BTAL )

This fund fights volatility with negative beta exposure to U . S . stocks , and it could act as a diversifier for clients with overweight positions in equities .

It works by simultaneously taking long positions in low-beta ( low-volatility ) U . S . equities while taking short positions in high-beta U . S . equities . By seeking exposure in the performance spread between low- and high-volatility stocks , the fund tries to minimize portfolio volatility and cut the impact of drawdowns .

The AGF fund could also be an effective alternative to Treasurys and low-volatility funds for those clients whose goal is to diffuse their overall portfolio risk . continued on page 59

60 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM