Multi-asset portfolios attempt to invest for a positive outcome in lots of different environments, not just an environment where economic growth prevails. They also utilise the full capitalisation structure of organisations. “One of the issues for Australian investors has been, given a lot of risk is in the Australian equity component of the portfolio, that a lot of that risk is related directly and indirectly to commodities via the resource exposure, and even the indirect effects of that back through into the domestic economy,” Doyle says. “Adding commodity exposure is doubling up on that risk. Even if you argue that because commodity prices have an impact on inflation, they’re a good inflation hedge, if you pay too much for them, it doesn’t matter how good an inflation hedge they are, you’re going to lose money.” Inflationary future press es alternatives case Matthias Gaertner, managing director of managed futures funds provider SuperAlphaFund, is a strong advocate of diversification through alternatives, particularly in light of government spending which he says will create pressure on bond markets and push up gold prices as investors look for a non-debt backed hedge.
He says a well diversified portfolio should have up to 20 per cent of assets invested in alternative investments, including managed futures, which have a low correlation to traditional asset classes. “Diversification only makes sense if there’s a low correlation between the different asset classes,” he says. “Governments around the world have spent $3 trillion on stimulus packages and we believe this will cause inflation or hyperinflation in the future. We really believe in gold, because gold is the oldest currency in the world and it’s not affected by any debt. It’s a real currency, not a paper currency.” While the more complex alternatives may still have a role to play in a more risk-conscious environment, Doyle says simplicity, in his view, wins out.
He predicts a shift back towards simpler, more transparent strategies and single manager balanced funds. “Effort in the industry has gone into looking at alternatives, understanding alternatives managers, hedge funds, style diversification which… have a role at the margin,” he says. “The big decisions trustees should make are: what are the broad risks I should be taking in my portfolio, how much risk should I be allocating to equities versus bonds versus credit versus alternatives and making sure that risk is allocated in a way that’s aligned with the funds’ objectives, not some arbitrary historic convention that says 60 or 70 per cent of my portfolio should be sitting in equities.” Stern does not see alternatives as a viable asset class in and of themselves, but instead believes they will become either subcategories of traditional asset classes or investment strategies, rather than asset classes.