Alternatives category clouds investment decisions
While most investors want alternatives that are uncorrelated or have low correlations to equities, an alternatives allocation is rarely that, Pengana Capital head of distribution Damien Crowley has warned.
Dumping all investments into one bucket because they were different from standard categories relied on flawed logic and was meaningless, Crowley said, suggesting the ‘alternatives' category should be replaced with an ‘uncorrelated' category.
"The crucial issue is the investment outcome — for investments to be bucketed together, they should deliver similar investment outcomes," Crowley said.
He said allocators were often confused between lack of correlation and lack of mark-to-market pricing, which meant many investments included in the alternatives category were correlated to equities.
"If an investment is not priced, then this does not mean that its value does not change with changes in markets," he said.
This could result in flawed reasoning behind investment decisions, according to Crowley, such as including listed infrastructure in the equities category and unlisted infrastructure being in the alternatives category — even where the underlying infrastructure assets were identical.
If similar assets in a listed form correlated with equity markets, they should be excluded from an uncorrelated category which would exclude property, infrastructure and private equity.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Ethical super fund Australian Ethical has announced the appointment of Anthony Lane as chief operating officer.
The structural shift towards active ETFs will reshape the asset management industry, according to McKinsey, and financial advisers will be a key group for managers to focus their distribution.
ASIC has warned that practices across the $200 billion private credit market are inconsistent and, in some cases, require serious improvement.
A surge in electricity prices has driven the monthly Consumer Price Index to its highest level in a year, exceeding forecasts.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
225.31 3 y p.a(%)
2
Loftus Peak Global Disruption Fund Hedged
120.73 3 y p.a(%)
3
Global X 21Shares Bitcoin ETF
72.47 3 y p.a(%)
4
Paradice Australian Mid Cap A
69.09 3 y p.a(%)
5
Global X Ultra Long Nasdaq 100 Complex ETF
61.94 3 y p.a(%)
