Reviewing the risks
Mr Onuekwusi agrees that since 2008 the environment has been one where risk assets have been trading in lock-step with each other, and some of the alternative asset classes have started behaving more like risk assets.
“The difficulty of a multi- asset fund manager is to really try and find an asset class that combines that true diversification you want over the investment cycle.”
Within his portfolios he uses property and commodities in addition to absolute return bond funds, which allow him to be more active in the fixed income space and benefit from both rising and falling yield environments.
He admits, however, that absolute return funds in general have struggled to perform with some disappointing results, but points out they are a large and growing segment of the alternatives sector.
He says: “For alternatives, especially the absolute return route, it is important you do extra due diligence because some of them are quite complex to understand and it is important to dig deep and really fully understand what you’re investing in.”
Ms Shah agrees that investors must understand the performance drivers of a product and how these might change over time, as in the case of managed futures.
She explains: “These strategies are computer-driven, and profit by identifying medium-term trends. They can take long and short positions across equities, commodities, interest rates, government bonds and currencies.
“While they can exhibit 15-20 per cent volatility, these strategies tend to be lowly-correlated with risk assets over the cycle. They also tend to perform well when volatility rises. The nature of these strategies means that returns are often lumpy, so there is no ‘right time’ to invest, although buying on dips can be beneficial.”
Property and infrastructure
Although more sophisticated strategies are available to investors, one of the more popular alternative assets in a portfolio is property and following on from that, infrastructure.
Ben Seager-Scott, senior research analyst at Bestinvest, says: “There is little sense in making an investment purely for diversification reasons in the absence of solid investment thesis.
“A popular alternative is property, which usually means commercial property, and can be accessed either by investing in a portfolio of physical buildings, or through listed property securities.
“Returns from property tend to be less volatile than bonds and equities, while tenancy agreements tend to have upward-only rental agreements, which help ensure rental income can at least keep pace with inflation.”
Mr Burdett holds a couple of infrastructure funds as a “solid, steady backbone to the portfolio”, but is not that keen on property suggesting investors need to be “very picky”.
However, he is trying to find some property proxies, examples of which are Medix, a listed company that invests in NHS doctor surgeries, and a caravan park fund called Darwin Leisure Property.
