Volatility has changed—and has changed us. During the previous decade, we had far more frequent occurrences of extreme (or “fat-tail”) moves in the equity markets, which deeply scarred most investors. Technically speaking, a fat-tail event is three standard deviations (“three sigma”) away from the mean and has only a 0.1% probability of happening—that is, statistically it should occur only once in every 1,000 periods under analysis. But in reality these “low probability” events occur far more frequently
While the century is young we’ve already had two severe market declines, and two long, painful recoveries. The result is a world with lower growth, a good deal of uncertainty, and the feeling that traditional investment options alone may not suffice. We believe some investors are seeking alternative investments to find yield, some for higher returns, or protection from rising rates, or a haven against market volatility—or any combination of the above.
If you feel like your portfolio needs a tune up making an allocation to alternatives has the ability to add real diversification, reduce volatility and improve risk-adjusted returns.