Last updated: 20:49 / Tuesday, 7 June 2016
Says Pioneer Investments

Investors Expect to Double the Weight of Liquid Alternative Strategies in the Future

Investors Expect to Double the Weight of Liquid Alternative Strategies in the Future

During the week of May 9 to 13, Pioneer Investments organized an event in Boston that was attended by 85 of its best customers from the United States and various countries in Latin America. Delegates from Merrill Lynch, Wells Fargo Advisors, Citi, Vector Global and Monex, among other firms, learned firsthand about the most successful funds of the firm, but also had time to participate in a discussion of asset classes and risk involved in asset management in the current market context.

The discussions focused on the multidimensional aspects of risk and risk management, opportunities available and how to build a robust portfolio given the current economic environment. Attendees were very interested in learning about the strategies that that allow Pioneer to minimize downshifts. For the firm, the answer to this can be summarized in one idea: we must change our mentality for the market to work out.

While it is true that thinking about investments as a way to beat a specific market index has served in the past, that does not mean it will be an appropriate approach for the future. For Pioneer Investments’ portfolios managers, there is a need to go beyond traditional ideas and start testing other strategies in order to get better returns.

Most investors are aware of the dangers facing the market nowadays, although risk appears to be among the main concerns of all of them. At a conference Pioneer Investments held in April, over 100 professionals of the mutual fund industry were asked to define what risk means to them. 34%, the highest percentage in the results, said risk meant losses, a drawdown. Second, with 26% of the responses, it was said that risk was to not be likely to achieve profitability goals.

Similarly, when asked what major gaps they faced in their investment strategy, 39% of the conference attendees said it was managing drawdown effectively while for 34% it was generating sufficient returns.

‘Risk is not one dimensional,’ summarised Hugh Prendergast, Head of Strategic Product and Marketing at Pioneer. It certainly goes beyond its traditional definition in the investment world: volatility. For him,volatility is not risk; it is simply movement. True risk management for investors should factor in volatility, drawdown, and shortfall against targets.

One option Pioneer identifies to help in all these regards are liquid-alternative strategies, given "how effective they have been in mitigating risk since the financial crisis". This performance record has not passed unnoticed by investors. The survey of the conference participants revealed that a majority of them, 54%, currently allocated 10% of their portfolios to liquid-alternative funds. Asked how they expected that to change over the next two years, the largest single category, 42%, responded that they expected to move to apportioning 20% of their portfolios to liquid-alternative funds.

Pioneer Investments believes that incorporating liquid-alternative solutions into portfolios will be essential in helping investors meet the functional challenges of the future.