I'll cut to the chase and then work from there. “You’re not a fiduciary if you don’t consider alts.” That came from a Bloomberg article about private equity firms trying to offer their funds in 401k plans for participants to invest.
This coming to pass would of course benefit all of the operating companies like Blackstone (BX), Apollo (APO), Carlyle Group (CG) and others but maybe not KKR as we looked at yesterday. Some sort of allocation to private equity inside of 401k plans would be a huge windfall for these companies. Actually allocating though as an end user, managing your own 401k or maybe even getting help with that, I don't think it is a great idea. The expense, the illiquidity, the manner in which these things tend to not be marked to market, the complexity, the gating of redemptions, man I wouldn't do it. If you gotta get in on the action, I think it makes more sense to benefit from the fees with the stock of one of the operating companies than to be the one paying the fees in your 401k or anywhere else.
We'll get to that doozy of a quote in a sec. Morningstar had an article about preretirees derisking their portfolios with bonds. They cited some historical data to make the case without differentiating maturities. Anyone doing any sort of modeling with bonds using historical data is relying on some or all of a 40 year rally on bonds that mathematically can't be repeated until intermediate term yields triple from here but even then it is unlikely the ten year ever gets to 58 basis points again. We've looked extensively at the volatility and the change in correlation behavior of bonds that has occurred in the last three and half years. If you still want bonds, ok but relying on backward looking analysis like what is in the Morningstar piece and plenty of other articles is a bad idea.
So, can you call yourself a fiduciary if you don't consider alts? That is an interesting question that has a bro, do you even lift feel to it and I don't know the answer. Alts cover a lot of ground including private equity and private credit. Both have become hot talking points as it feels like we're on the verge of much broader access.
We spend a lot of time looking at so called liquid alts here and I use quite a few in my practice, combined with more exposure to very plain vanilla exposures. We've taken to referring to this sort of portfolio construction as a lot of simplicity hedged with a little complexity. For as much as I write about liquid alts (I don't really use that term very often), if you read this site even occasionally then you must have at least a little curiosity, you are considering alts then whether you are your own fiduciary or an advisor of some sort.
If you buy into the idea that longer term bonds don't protect portfolios the way they used to, then that sort of forces you to consider alts, liquid alts anyway. The observation made at the first iteration of my blog 20 years ago that funds and ETFs (the term liquid alts wasn't common or maybe did not exist yet) would become increasingly sophisticated to offer retail sized accounts the opportunity for more robust portfolios has of course come true and there will continue be further sophistication in the future maybe to the point where the word alts will no longer be used.
Closing out, a final note on the Innovator Defined Wealth Shield ETF (BALT). I got a marketing email from them and it said the "estimated cap range" for the quarter starting on Tuesday will be 1.97%-3.01%. This helps with a point made yesterday that in the right, albeit unlikely, circumstance of a massive decline in the S&P 500 that far exceeds the buffer (decline protected against) inside of a calendar quarter could take years to claw back to even. If anyone actually wants to buy BALT as a fixed income proxy, ok but I would suggest not holding on if it looks like a 20% decline inside of a quarter is going to happen.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
No comments:
Post a Comment