Thinking Differently

Today’s market environment appears to be an exceedingly challenging one to navigate, and investors are grappling with the question of how best to structure portfolios that not only meet their return targets, but provide impactful diversification and risk management. As interest rates have fallen to secular low levels, return expectations have compressed, and cross-asset correlations have climbed, investors have expanded their collective search for truly uncorrelated assets, which ideally might provide some yield.

In this Topic of Interest paper, we will assess a wide variety of less-conventional investment strategies in both mature and nascent marketplaces, and which may only appeal to a specific set of investors. Instead of analyzing these assets from Verus’ preferred (carry, value, momentum) framework, this paper will suggest a different set of lenses. First, it will drill down to the fundamental reasons why people decide to buy or sell things in the first place. Next, it will identify a number of irregular, perhaps lower-capacity investment strategies, and attempt to group them based on shared and dissimilar characteristics. Finally, it will lay out some of the fundamental bets embedded in investing in each space, and therefore, what investing in each space might provide for a portfolio’s return and risk expectations. The goal is not to produce a series of concrete capital market assumptions informed by fundamental return drivers and historical volatility and correlation metrics. Instead, this paper will aim to think differently about some of the less-charted parts of today’s market landscape and suggest a roadmap.