NON CORRELATED ASSETS
6 Don’t underestimate the value of non-correlated assets
For many years, it has been the practice to use an asset class that is not closely correlated to equities, and potentially less volatile to reduce the overall risk/volatility of a portfolio. Traditionally bonds – especially government bonds have been used for this. We consider that in current markets, alternative investments such as absolute return funds can be a more effective way of reducing the risk of a portfolio than the traditional method of using bonds, which are now an artificial market supported by unsustainably low short term interest rates as a result of government purchases. We thus make extensive use of lower volatility, low correlated funds that aim to earn an absolute return, but we take care to ensure that these funds offer ‘great value for money’ and eschew funds that aim to achieve such returns by trading. Thus we do not normally use the more traditional type of hedge fund that rely on the trading expertise of its mangers (we have already mentioned our skepticism re trading) but rather prefer funds that hold easily understandable assets that for a valid reason, are not closely correlated to equity assets.