In a presentation on alternative investment strategies this morning, someone remarked that broad market benchmarks like the Nasdaq or S&P 500 outperformed some of our absolute return portfolios in 2024. Well, congratulations to them! However, comparing these strategies to market benchmarks is like comparing a marathon runner to a sprinter, they are built for entirely different races with distinct objectives and approaches.
Our alternative investment strategies are not designed to dazzle during bull markets or ride the euphoric waves of speculation. Instead, they operate under mandates that prioritize delivering risk-adjusted returns, achieving absolute performance and maintaining disciplined downside risk management.
To better understand the nuances of alternative investments, it is helpful to compare volatility levels across asset classes. The table below highlights the annualized volatility for various asset classes over the period 2000 to 2024, emphasizing the diverse risk characteristics of different investments:
Volatility in the chart is measured as the standard deviation of annual returns over the specified period. This data underscores that higher volatility asset classes can deliver dramatic gains in favorable market conditions but come with significant risks. Conversely, our range of alternative investments aim for steadier performance, balancing growth with disciplined risk management.
That said, we also understand that no two investors are the same. Depending on individual profiles and objectives, we do not put all our eggs in the alternative investment basket. For those with higher risk appetites, we incorporate allocations to more aggressive, high-beta trades alongside our core strategies.
This ensures that our portfolios are as diverse as the investors we work with ranging from those who value steady, uncorrelated returns to those seeking to capitalize on higher volatility opportunities.
So, if your only yardstick is raw, unhedged returns during a bull market, our alternative investments might look “boring” at first glance. However, boring becomes brilliant when market conditions shift and we are well-positioned to thrive across a wide spectrum of scenarios.
