Portfolio Perspective –

Portfolio Perspective

March 17, 2022

Periods of market volatility highlight the benefits of alternative investments as a portfolio diversifier

Dylan Kase, CFA

Sr. Investment Strategy Analyst, Portfolio & 

Market Strategy

Wasif Latif

Managing Director, 

Portfolio Strategy

Spencer Boggess

Managing Director,

Alternative Investments

Len Lebov

Senior Analyst,

Alternative Investments

All authors are part of Truist Advisory Services, Inc.

What happened

Coming into the year, our view was that select alternative strategies were incrementally more attractive given our expectations for higher interest rates. With both U.S. stocks and core bonds in negative territory year to date, global hedge funds are outperforming on a relative basis. Certain strategies have been able to take advantage of dislocations created by heightened volatility. This underscores the importance of diversification and the role that alternative strategies can play within portfolios during more volatile market environments.

The complexity of the current market environment has had a differentiated impact on alternative strategies, with those more tied to the equity market, such as hedged equity, seeing weaker performance while those that tend to benefit in periods of market dislocations like macro funds performing well. Still, in aggregate, each of the strategies are outperforming the broader equity market, and hedged equity is down less than half compared to the S&P 500 through February.

Higher rates and higher volatility have benefitted alternative strategies

Our work suggests that recent market volatility as well as higher interest rates have been a driver of the strong relative performance from alternative strategies compared to U.S. stocks and bonds. On the interest rate front, higher inflation and uncertainty around the path of Federal Reserve (Fed) policy has pushed yields and credit spreads higher, bringing the price return of fixed income assets into negative territory. Looking at the stock market, Fed policy uncertainty and the war in Ukraine has fueled risk-off sentiment and caused a correction in the S&P 500. International equities have been hit even harder.

Our work generally suggests that as interest rates move higher, certain alternative strategies tend to outperform core bonds as the rising rates tend to weigh on bond prices, mirroring what we have seen so far this year.

The latest research & insights

    {0}
    {6}
    {7}
    {8}
    {9}
    {12}
    {10}
    {11}

    {3}

    {1}
    {8}
    {9}
    {10}
    {11}
    {14}
    {12}
    {13}
    {1}
    {2}
    {7}
    {8}
    {9}
    {10}
    {11}
    {14}
    {12}
    {13}