ETF Trends spoke with AGF Investments LLC’s Chief Investment Officer and Head of AGFiQ Alternative Strategies, Bill DeRoche, about what strategies advisers should be looking into.
When considering alternatives, it tends to come down to anything not correlated highly with core equity or core fixed income. So, looking to use alternatives would mean having less than positive views on those factors.
Looking at those asset classes means looking at them over very long periods when considering their strategic allocations. This leads to looking at things more tactically, leading to a shorter forecast.
So, when noting equities from a longer period from a strategic perspective, the view is they have done exceptionally well over the last decade, and that AGF is cautioning clients how they can’t expect to see the same levels of return. Primarily, it comes down to advising investors that things will decrease in the next decade, given the amount of previous success.
On The Short Side Of Things
When looking at a shorter-term of equities, the most significant risk exposure in an equity portfolio would be global economic growth. The consensus view is how the global economy has been slowing, with some regions looking to be in recession (possibly eventually including North America). If anything, this would suggest looking to reduce short term equity exposure.
The issue with this has to do with the solution usually meaning adding to fixed income. However, the view of fixed income is less positive than it is for equities.
“When we look at our longer-term strategic view for fixed income, we don’t expect any returns from price appreciation, meaning interest rates dropping,” DeRoche states. “So, as a result, we’re starting at a very low yield, and our return expectations are much lower than they’ve been over the previous decade.”
“You add that with any time yields shrink significantly, that means durations extend, and as a result, your fixed-income asset, which was used to mitigate volatility and drawdowns, now has lower return expectations and higher risk associated with it. So now both asset classes that we would traditionally allocate the bulk of our capital, we have concerns about.”
From AGF’s perspective, they are cautioning clients and suggesting to look for ways to provide for risk mitigation and volatility reduction in an overall portfolio.
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