Alternative Investments

TriDelta Alternative Performance Fund

We recently launched our Alternative Investment Fund which is designed to provide:

  • A high income stream
  • Diversification among different strategies to reduce risk
  • Lower portfolio volatility – low correlation to the stock market
  • Enhanced returns with a target return of 8% to 10%
  • Capital protection during periods of stock market decline
Performance of Alternative Investments

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The case for investing in alternative investments

At TriDelta we research the marketplace for viable portfolio solutions including an analysis of where leading pension and endowment funds invest. They have been reducing their bonds and, to a lesser extent, their publicly traded stock portfolios. Under the catch-all phrase of alternative investments, many pensions and endowments have instead been investing between 25 per cent and as much as 75 per cent (Yale University Endowment Fund) in alternative investments.

What are Alternative Investments?

Alternative investments are essentially any asset that is not a public stock, bond or cash security. Alternative investments often provide higher returns than traditional assets by focusing on less efficient or private asset classes, such as infrastructure and private equity. They can generate stable, high levels of income by investing in private income oriented investments, such as real estate and private debt. Hedge Funds, such as Market Neutral Hedge Funds can also reduce volatility by using sophisticated hedging strategies.

1. Returns can be meaningfully improved and risk reduced by including alternative investments

According to JP Morgan research, portfolio returns were improved by more than 10% p.a. and volatility was significantly reduced by adding 20% to alternatives.

A balanced investor with 50% invested in stocks and 50% invested in bonds would have seen their return improve and their risk reduced by moving to an asset mix of 40% stocks, 40% bonds and 20% in alternative investments. Growth oriented investors with a 70% stocks, 30% bonds asset allocation would also have benefitted by including alternative investments to earn higher returns and reduced risk.

 

2. Invest where the ‘smart money’ invests

The ‘smart money’ generally refers to professional investment managers. We research where they invest given that they have consistently achieved superior investment returns versus more traditional models. We then fine tune our own investment allocations and strategies.

The Pension Investment Association of Canada, which includes Canada’s largest pension plans and nearly $1.6 trillion of assets under management, provides an annual asset mix report. As the chart below highlights, in 1990 alternative assets comprised only about 10% of the total asset mix. By 2015, alternative assets comprised over 33% of the asset mix, an increase of over 200%.

 

 

Alternative Investments Make up over 40% of US University Endowment Portfolios

Alternative Investments Make up over 40% of US University Endowment Portfolios

 

 

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