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The Tidal Financial Group (Tidal) expanded rapidly over the last decade and encompassed multiple ETF related brands including Toroso Investments, Tidal ETF Services, and the ETF Think Tank. Going forward all activity will be unified under the Tidal brand as we become one company, dream, family, and platform focused on holistic ETF customer solutions.

Get Think Tanked Distilled with Shana Sissel

When investors think about a diversified portfolio, they usually consider it some combination of stocks, bonds, and cash. Alternative assets and strategies don’t often enter the calculus, but they should. That is the belief of Shana Sissel, the Founder and President of Banríon Capital, which specializes in helping advisors develop strategies involving alternative investments and putting them inside client portfolios.

Sissel believes that many people view alternatives incorrectly. Investors often think of them as something to throw into a broader portfolio, but they don’t think of them as part of a core strategy. They think of them as a tactical diversifier, but not a core diversifier in the same way they view fixed income. People view alts a little differently today because they’ve learned over the past year that stocks and bonds can fall together and bad things can happen at the same time. Sissel’s portfolios haven’t experienced nearly the same level of negative performance because her alternative positions have performed really well and diversified away risk at the same time.

Sissel feels that alts have not caught on in recent years because during long, drawn-out bull markets, hedged products don’t seem very sexy or particularly useful. Because they have a tendency to be more complex and the time frames in which they outperform tend to be shorter, investors often just default to fixed income for protection. Alts are meant to provide true diversification. She notes that over the past 10 years, if you had a 20% allocation to a diversified portfolio of alternatives, you would have outperformed the traditional 60/40 portfolio by about 50 basis points annually while reducing overall risk by around 300 basis points.

Sissel believes that portfolios should contain a 20% allocation to alts, although she acknowledges that some studies think a 30-35% allocation could provide peak benefits. Within that 20% sleeve, she generally targets four strategies with equal weights – long/short equity (BTAL), tactical commodities (FTGC), global long/short credit (LMAOX) and global macro (QGMIX). This is what she would consider the completely liquid “available to everyone” alt strategy. She likes BTAL in particular because it’s got a clear objective and works great as a hedge.

Sissel is also a believer in managed futures. People should consider exposure to three areas – hedge funds, private equity/debt and CTAs/managed futures. Admittedly, there are not a lot of great CTA offerings in the fund world. There are some better macro offerings and those tend to perform similarly. CTAs should be a core allocation in any alt portfolio.

Other key takeaways:

  • Sissel doesn’t approach rebalancing in alts any differently than rebalancing equities or fixed income. Rebalancing semi-annually or annually generally works best.
  • REITs, MLPs and covered call strategies aren’t alts. They’re part of equities.
  • The number one misconception about alts is that they are expensive. There is a higher cost to implementing a long/short strategy, but it’s not bad and the benefits are worth it.
  • When implementing an alternatives strategy, you should look for funds that are uncorrelated and the correlations with each other should also be considered. Those make the best diversifiers.
  • Volatility products could be useful and do offer some diversification benefits, but they have to be implemented thoughtfully. Moves in the VIX tend to be very short-term in nature and that requires better timing. There’s some possibility with VIX products as part of a broader alts strategy.
  • What leads you to the conclusion that an alt is a good alternative? Sissel doesn’t mind passing on something that’s good if she can avoid the things that are bad. She’s leery of something that’s consistently good versus something that’s consistently bad. If it sounds too good to be true, it probably is.

All investments involve risk, including possible loss of principal.

The material provided here is for informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

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