Transcription of the video "Which Liquid Alternatives Strategies to consider? By Florent Pochon"

 

[Speaker: Florent Pochon, Head of Cross Asset Strategies at Natixis CIB is speaking in front of the camera]

"Alternative strategies are always useful tools to diversify portfolios, but we think it's particularly the case today for 4 reasons.
First - Directional bets are risky given erratic geopolitical news flow.
Second, Equity valuations are elevated almost everywhere, and AI driven concentration is extreme.
Third, rates are likely to stay higher for longer. Hence, government bonds are no longer a reliable equity hedge.
Finally, other traditional safe havens, like the US dollar and gold, are expensive and less effective.

So - What are liquid alternative strategies? 
Unlike the traditional long only approach, they are systematic strategies that combine long and short positions in liquid assets.
They are not immune to market conditions, but they tend to have low betas to equities and bonds, and, on average, they deliver positive alpha. 

In the current environment three liquid alternative strategies are doing well.
First, carry strategies. FX carry benefits from higher rates and dispersion linked to inflation risk. Equity volatility carry have also done well by capturing the spread between implied and realized volatility. Both should continue to perform baring a strong risk off shock.
Second, trend following strategies. Higher inflation creates trends they can capture. And as the equity–bond correlation is positive, they can effectively replace bonds to hedge equity risk.
Third, long/short commodity strategies. They benefit from dislocations in commodity curves and adapt to new macro regimes like stagflation.

These are the strategies we most often discuss with clients today, either as stand alone investments or as additions to equity portfolios."