As I look out my office window I am astonished to see snow covering the ground - yes snow in April! This just goes to show you that the unexpected is always a real possibility. So, even in today's healthy stock market, you should be aware of alternative and defensive portfolio strategies. Although I am very comfortable with the health of our stock market, I would like to play devil's advocate and share a contrarian solution for your conservative monies.
Absolute Return Portfolio
At Colgan Capital, LLC we are constantly seeking unique solutions for our clients. In 2006 we discovered a very interesting solution for risk adverse investors called the Absolute Return Portfolio. It is ideal if you are wary of having too much invested in stocks but also have concern that bonds don't look that attractive.
The Absolute Return Portfolio, offered through our Morningstar Managed Portfolios™ program, is positioned for modest capital appreciation in all market environments. In any given year, the goal of the Absolute Return Portfolio is to deliver modest positive returns with an emphasis on limiting volatility. The portfolio strives to achieve this goal by investing only where there are opportunities to add value, and it is not constrained by measuring its results against a specific benchmark, such as the S&P 500 Index. This less-restrictive approach allows the portfolio to invest in a wider range of options in its search to add value on a consistent basis. Although a main objective of the portfolio will be to limit downside risk, there is no guarantee that losses can be avoided.
Construction Intended for Risk-Managed Results
The portfolio employs a risk-managed approach that includes combining open-end mutual funds from various asset classes that exhibit low correlations with each other. The portfolio also favors funds in which the portfolio managers stress capital preservation and set absolute performance as the primary goal. In addition, the portfolio will invest in open-end mutual funds that employ hedged and/or opportunistic investment strategies. These strategies may include long-short, hedged option, convertible arbitrage, and distressed securities.
The portfolio is diversified across various asset classes, including global equities, global fixed income, real estate, natural resources, and cash. This broad level of diversification aims to enhance the portfolio's risk-adjusted performance. Due to the fairly unique nature of the types of securities that the underlying funds may invest in, the performance of the portfolio will not be highly correlated to traditional asset classes. While the portfolio will always have exposure to various asset classes for diversification purposes, the portion of assets dedicated to certain segments of the market will change to take advantage of relative opportunities presented in the market.
To learn more about The Absolute Return Portfolio and Morningstar Investment Services please give Doug or me a call. We will work with you to help you determine if this portfolio is right for your financial situation and objectives.
