Buy Alpha: Part of the BARBELL approach
At Picton Mahoney, we believe portfolio construction is one of the greatest differentiators in the wealth management industry. As an investor, you can elevate the composition of your portfolio by going beyond the traditional 60/40 split of stocks and bonds, and using all the available tools to strengthen your portfolio and uncover sources of alpha.
The past few years have shown many investors that they were taking on too much market risk. For some, the solution has been to dial back this risk by investing in cash: in 2023, the industry saw multibillion-dollar flows into that asset class1 . While cash is stable, it can also reduce long-term return potential, which can prevent you from reaching your financial goals.
Instead, investors may want to consider “buying alpha” by adding an allocation to strategies that are designed to meaningfully outperform cash without taking on additional stock or bond market risk. Think of them as “cash beater” strategies.
A dedicated allocation to alpha strategies can help cushion your portfolio against shorter, sharper market cycles. Why? Because alpha strategies are designed to act as diversifiers, muting the impact of market movements on your portfolio – so you can spend less time worrying about what interest rates or equity markets are doing.
Where does alpha fit in your portfolio?
Good examples of alpha strategies are things like market neutral strategies and event-driven strategies. Such strategies tend to be more dependent on a portfolio manager’s skill than on market movements. They offer the potential for meaningful returns in excess of cash, while aiming to provide stability and diversification to the rest of your portfolio. By adding a dedicated layer of alpha strategies, you can fortify your portfolio so it has the potential to be more reliable in delivering the returns you need to achieve your goals.
How can you put this into practice?
Adjust your strategic asset allocation to include a dedicated strategic exposure to alpha strategies, where returns are driven more by portfolio manager skill, rather than market risk.
Learn more about Picton Mahoney’s BARBELL approach to portfolio construction
Download BARBELL Tip SheetThis material has been published by Picton Mahoney Asset Management (“PMAM”) on March 7, 2024
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