Insights
Overview
In this webcast, Catherine and Rick made the case for diversifiers and shared GMO’s approach to designing a comprehensive liquid alternatives solution.
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*This content is intended for accredited investors only.
Key Points
The Case for Diversifiers
- Portfolios Need More Than Stocks and Bonds
While a balanced stock/bond portfolio has produced decent returns with moderate volatility, a balanced portfolio can experience stagnant returns for multiple consecutive years. Neither stocks nor bonds deliver in a stagflation scenario. During the 1970s, both stocks and bonds delivered negative real returns for a full decade. With the economy weakening and inflation remaining stubbornly high, investors’ fears of stagflation have increased. - Some Alternatives Don’t Truly Diversify
With the democratization of private assets, many investors are excited to add these strategies to their mix. While private equity may offer excellent alpha opportunities, investors are bearing more levered equity risk with less liquidity. - Liquid Alternatives Provide Access to Diversifying Return Sources in an Efficient Package
Liquid alternatives draw on multiple sources of return, including compensation to underwrite risk (fundamental declines and drawdowns) and the exploitation of behavioral anomalies. These are implemented through long/short strategies that include market neutral, event-driven, macro, trend, and multi-strategy portfolios. With daily liquidity, these strategies are ideally suited to enable effective rebalancing within a multi-asset allocation.
GMO’s Solution: GMO Alternative Allocation
Because diversifiers are a critical component of the GMO Asset Allocation team’s investment universe, we designed a customized strategy to fit our needs. GMO Alternative Allocation is our solution to accessing the benefits of liquid alternatives in a single, convenient portfolio.
- GMO Alternative Allocation (“ALTA”) seeks to deliver equity-like returns with sensible and competitive fees, allowing for realistic return forecasts and prudent risk management. At current cash rates, a return competitive with stocks and bonds is feasible.
- ALTA has delivered true diversification with consistently low correlation across market environments.
- ALTA is a complete solution offered via a U.S. mutual fund. ALTA is accessible with daily liquidity, is extremely capital efficient, and benefits from a competitive flat fee structure.
ALTA attempts to MAXIMIZE Likelihood OF MEETING RETURN TARGET
