Family Office

Unconstrained multi-asset portfolios

3/13/2022 8:00:00 AM
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In the last two years, our planet has been shaken by disruptive trends that will change the way to do business forever. Just to mention some of these events: the arrival of the metaverse, the COVID-19 pandemic and increasing global inflation.

This era of continuous changes presents a unique opportunity to grow and thrive, but also to lose everything. Just to give you an example: In April 2020, WTI oil crashed towards USD –37.63 because of the disruption caused by global lockdowns. A negative price meant that oil companies would pay customers to buy the oil. Two years later, oil is reaching levels not seen since 2008 in a rally that could lead the price to $150 per barrel, or even more.

Only the smartest businessmen will survive and thrive in this wild market. In this context, unconstrained multi-asset portfolios are becoming considered as reliable options for many investors.

These financial instruments also can deliver inflation protection, something really important considering the global situation: high inflation caused by a combination of increased money supply, disruptions in supply chains and political instability.

How to use this situation in our favor?

This is the question that Arno, one of our partners, hears every day from high net worth individuals and Family Office investors. 

Using the proper strategy, it is possible to hedge inflation and receive good profits. In a nutshell, we will tell you two key insights: 

- Asset allocation and diversification are key to generating higher returns with better capital preservation and lower volatility than conventional portfolios. 

- Blending less liquid with liquid investments in a portfolio expands the opportunities for higher returns, and while it does require commitment to longer redemption periods overall, this can be managed so that substantial liquidity is available at shorter notice.

Strategies with some of the above features are available in a number of products, including: Daily-liquidity Retail Funds such as Diversified Growth Funds or Global Allocation Funds; and Less Liquid Private Funds such as Multi-Strategy Hedge Funds.

Few managers offer all the features in one strategy. 

How about inflation protection?

Although not guaranteed, inflation protection can be provided by hedging portfolios to gold as a currency, rather than to paper currencies.

This enables the combination of gold hedging returns with portfolio investment returns to deliver gold plus returns which ought to keep up with inflation over the longer term.

What about the ROI?

Unconstrained multi-asset multi-strategy investments ought to be able to target returns in high single digits with lower volatility and if hedged to gold then they ought to be able to deliver gold plus mid to high single digits over the medium term. 

Why should these investments be profitable?

By being unconstrained these strategies can focus where fair value and expected returns are understood with confidence, and there is comfort with multiple risk measures.

Unconstrained investment managers believe that capital allocation is the key discipline, cycles can be understood, and portfolios can be managed to mitigate suffering from these. 

For example, today, US equity market valuation metrics exceed 1929 and 2000, by some margin – this does not bode well for future returns.

Consequently it is possible if not likely that conventional portfolios are likely to perform poorly in the coming years. 

Disclaimer: The information contained in this article is for informational purposes only and does not constitute financial advice or recommendations. Investing in financial products or cryptocurrencies involves risks, and you should be aware of the potential risks involved before investing. The content on this website is not intended to be a solicitation or offer to buy or sell any financial products or services. The information provided does not take into account your specific investment objectives, financial situation, or needs, and should not be relied upon as a substitute for professional financial advice. You should seek independent advice from a financial advisor or other professionals before making any investment decisions. Please be aware that the legal status of cryptocurrencies and other financial products may vary in different jurisdictions and may be subject to regulation. It is your responsibility to ensure compliance with any relevant laws and regulations governing the sale and marketing of financial products and services in your jurisdiction.

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