How alternatives boost portfolios

Retirees and institutional investors share the same priorities.

Both aim to reduce portfolio volatility and maintain steady streams of funds, says Faizan Dhanani, an executive vice president at Horizons ETFs. To achieve this, many institutional investors are shifting away from conventional 60/40 portfolios, he adds. The move is crucial since the correlation between traditional asset classes—such as equities, bonds, fixed income and gold—is rising.

Along with bond yields dropping from between 6% and 8% to between 1% and 3%, Faizan has found commodities and many large-cap, small-cap and fixed-income securities are performing more like equities.

As such, most major institutional funds have turned to alternatives such as real estate and private equity, to beef up their yields. The Yale Endowment Fund has allocated more than half (58%) of its portfolio to alternatives, says Faizan, and in Canada, OMERS has allocated 47% and the Ontario Teacher’s Pension Plan has invested 37% in alternatives.

Since those asset classes are hard to break into for average retail clients, he suggested you help them look for funds that offer exposure. People should also consider investing in ETFs tied to hedge funds, managed futures and corporate bonds to help diversify their holdings, Faizan adds.

Read more: ALTERNATIVE SHOULDN’T BE A DIRTY WORD