Reasonable valuations, economic growth, falling interest rates, and growing debt: the driving forces of a typical balanced fund’s performance are all but spent. So, stocks, and in particular bonds, the twin engines of the balanced portfolio, could both struggle to fly higher from their current elevated altitude, meaning most super funds are likely to disappoint again in the coming years.
This is the view laid out by Jerome Lander of Lucerne Investment Partners, who says investors need to completely rethink how they allocate unless they want portfolios yo-yo-ing up and down alternately on crisis-induced falls, and then stimulus-driven rallies, ultimately to go nowhere. This process has already started, he says, pointing at how poorly super funds fared last financial year as an example, and also as a likely preview of what lies ahead unless you act.
So, we took the opportunity in this special 25-minute interview with Jerome, who manages the Lucerne Alternative Investments Fund, to explore his view, understand what investors should be doing instead, see if his previous call for precious metals still stands, and find out where he is seeing new opportunities today.
Notes: You can access the key takeouts from the interview, download the full edited transcript and see a breakdown of Lucerne Alternative Investments Fund's current asset allocation below the video.
Some key takeouts:
On why investors need to rethink portfolio construction:
“We need to think outside that box of cash, bonds, and equities in order to get the result that clients want and need, given the particular market circumstance that we have. We need to think more broadly than that, we need to solve the problem in a different way”.
On the need for market reforms rather than QE:
“... how do we make things better for everybody? How do we create real prosperity, as opposed to creating fake wealth?
On revisiting his previous gold call on Livewire:
“I still think there’s scope for precious metals to do well, if the policies we see being enacted continue, there’s still reasons to remain bullish, it just doesn’t have the same skew as we saw previously”.
On new opportunities:
“...that sort of market is a very different market from the one we’ve been in and we can really see a reversion in terms of the massive divide between certain value stocks and growth stocks in terms of what might perform going forward”.
On why a well run multi-manager model works:
“... when things turn you’re able to minimise that risk and by avoiding big drawdowns that’s how you build long-term compounding for clients. So to really focus on long-term compounding, you really do need to be diversified”.
On picking a manager:
“Ask: are they really different from what’s out there? Because to get a better result from average, you need to be different from the average. So, are you different? And: how are you good at being different?"
On positioning for this market:
“The juxtaposition of markets which are really very expensive, and the real economy which is extremely challenged, there’s a big divide there, and something you really need to get your head around if you’re a long term investor.”
What Lucerne Alternative Investment Fund invests in
While actual fund names can’t be provided, an illustrative breakdown of the Lucerne Alternative Investment Fund below provides more context around where Jerome sees asset allocation opportunities in liquid alternatives outside the constraints of the traditional balanced portfolio, with the aim of providing a much superior risk-adjusted return while avoiding large downside risks from traditional market exposures.
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Lucerne Alternative Investments Fund takes an investment approach focused on capital preservation, low volatility, and a low correlation to equities. Click 'CONTACT' to talk with us.