Liquid Alternatives for the Canadian Investor

30 October 2019 by National Bank
liquid alternatives Canadian inverstors

Rethinking risk diversification following a decade-long bull run has been on the minds of many investors. Gone are the days when investors could take solace in their diversified portfolios of stocks and bonds These traditionally uncorrelated assets are increasingly moving in tandem with one another, prompting the need for untraditional methods of diversification.  

Changing the investment landscape

What followed was an era fueled by equity markets reaching all-time highs at the expense of historically low interest rates. More recently, having shown up late to the party, market volatility has contributed to investors double-guessing their investment strategies.

After years of gains in traditional asset classes:

 

img_article_BNI_1.jpg

 

This result culminated in investors and their advisors recognizing the value of adding alternative investment strategies to help mitigate risk. The case for liquid alternatives made it evident that investors were seeking access to a structure that would have the benefits of alternative strategies, but also with the standards of proper regulation, ease of use, and transparency, enhancing downside protection.

Rising demand for liquid alternatives

In the years since the financial crisis, institutional investors and pension funds (often referred to as “smart money”) have recognized the need to diversify further. Many opted to allocate a portion of their portfolios towards non-traditional asset classes and alternative strategies. This was done to help mitigate market volatility while adding additional sources of potential returns.

This new category, once an exclusive space for institutional and sophisticated investors, has now been made accessible to Canadian investors seeking the same potential of added downside protection.

Exploring a broader opportunity set

Traditional portfolio construction has always dictated that maintaining diversification to achieve a resilient portfolio can weather a stormy market. Asset classes that are mutually uncorrelated is one way of achieving this.

Adding an uncorrelated asset class can reduce risk:

img_article_BNI_2.jpg

 


Liquid alternatives essentially combine the liquidity and transparency of traditional investment funds with investor-friendly regulations for investors. With improved diversification, increased downside protection and access to additional sources of returns, investors now have access to attractive risk-adjusted returns which allow them to broaden their opportunity set, independent of traditional stock and bond markets. 

----------

The information and opinions herein are provided for information purposes only and are subject to change. The opinions are not intended as investment advice nor are they provided to promote any particular investments and should in no way form the basis for your investment decisions. National Bank Investments Inc. has taken the necessary measures to ensure the quality and accuracy of the information contained herein at the time of publication. It does not, however, guarantee that the information is accurate or complete, and this communication creates no legal or contractual obligation on the part of National Bank Investments Inc.

Views expressed regarding a particular company, security, industry, market sector, future events (such as market and economic conditions), company or security performance, upcoming product offerings or other projections are the views of only the portfolio manager, as of the time expressed and do not necessarily represent the views of National Bank of Canada and its subsidiaries (the “Bank”). Any such views are subject to change at any time based upon markets and other conditions, which could cause actual results to differ materially from what the portfolio manager presently anticipates or projects. The Bank disclaims any responsibility to update such views. These views are not a recommendation to buy or sell and may not be relied on as investment advice.

© 2019 National Bank Investments Inc. All rights reserved. Any reproduction, in whole or in part, is strictly prohibited without the prior written consent of National Bank Investments Inc.

Legal disclaimer

The articles and information on this website are protected by the copyright laws in effect in Canada or other countries, as applicable. The copyrights on the articles and information may belong to the National Bank of Canada, its subsidiaries or other persons. Any reproduction, redistribution, communication by telecommunication, including indirectly via a hyperlink, or any other use thereof that is not explicitly authorized, of all or part of these articles and information, is prohibited without the prior written consent of the copyright owner.

The content of this Web site is provided for general information purposes and should not be interpreted, considered or used as if it were financial, legal, fiscal, or other advice in any way. In addition, the information presented on this Web site, whether financial, fiscal or regulatory, may not be valid outside the province of Quebec.

This article is provided by National Bank Direct Brokerage (NBDB) for information purposes only. It creates no legal or contractual obligation for NBDB and the details of this service offering and the conditions herein are subject to change.

The hyperlinks in this article may redirect to external websites not administered by NBDB. NBDB cannot be held liable for the content of external websites.

Views expressed in this article are those of the person being interviewed. They do not necessarily reflect the opinions of NBDB.

 

Categories

Catégories