CONQUEST Alternative (Tactical Asset Allocation)

Separately Managed Account

Rather than focusing just on stocks or bonds, Conquest Alternative portfolios include a 20% allocation to liquid alternative assets1which have shown a tendency to perform differently than either stocks or bonds over time. Actively-managed open and closed-end mutual funds are used, alongside exchange-traded funds.

Portfolios are available with different target mixes of stocks, bonds, and liquid alternatives to meet different sets of goals and risk tolerances. Stock and bond exposure, along with exposure to sub-asset classes, are then tactically allocated based on changing market conditions.

Portfolio Construction

70% Tactical Core (Long-Run Focus): A diversified mix of equity and fixed income assets focused on long-run expected risk and reward. Evolving risk and return expectations will determine the weightings of assets relative to the benchmark’s risk exposures.

20% Liquid Alternatives (Long-Run Focus): A mix of liquid alternative assets and strategies with lower correlation to pure stocks, bonds, or cash. Owning a mix of securities that behave differently than assets in the core has the potential to dampen the volatility of the overall portfolio over time.

10% Tactical Satellite (Short-Run Focus): A monthly evaluation of fundamental conditions determines the mix of stocks and bonds here. When the 3-6 month forecast of incoming data shows improving conditions, the satellite will be more heavily concentrated in stocks over bonds. A deteriorating forecast shifts the mix toward bonds and away from stocks.

Beyond Stocks and Bonds

Markets can move up and down like a roller coaster, creating both opportunity and risk. Adding alternative assets, such as commodities, hedge funds, and REITs alongside stocks and bonds may improve a portfolio’s return and risk profile. This can happen when alternative asset classes, those other than stocks and bonds, move differently than either stocks or bonds.

The addition of alternative investments alongside stocks and bonds can move the risk/reward curve up and to the left, as seen below. So for a given level of return, risk may be lowered, or for a given level of risk, return may be raised.

Markowitz Efficient Frontier2

Click here for important disclosures.

1. “Liquid Alternatives” or “Liquid Alts” in this context refers to asset classes or strategies that do not easily fit into the broad categories of stocks, bonds, or cash. Such assets or strategies may include Real Estate Investment Trusts (REITs), Gold, Long-Short Equity Strategies, or Merger Arbitrage Strategies.

2. Harry Markowitz was an economist who received the Nobel Prize in Economics in 1990s for his work on modern portfolio theory.