All Weather Alternative Strategies

Elana Margulies-Snyderman:

Hi, Cole. Thank you so much for being with me today.

Cole Wilcox:

Hey, Elana. Thanks for having me.

Elana Margulies-Snyderman:

Absolutely, Cole. So, to kick off the conversation, tell us a little about the firm, and how you got to where you are today.

Cole Wilcox:
Recently I woke up, and realized I'm kind of old, because my career started 25 years ago, and Longboard was founded in 2003. So, we just went through our 20th year anniversary. And during that entire period of time, our firm has been focused on alternative investment strategies, with a particular focus on systematic trend and systematic investment strategies that you typically see in the managed futures arena. That's the backstory of how we got. We were originally a private investment firm, private partnership funds for the first decade, and then we saw post global financial crisis 2008-2009 an opportunity for a need for mutual funds and retail format to use alternative investment strategies. So, we pivoted the firm's business model to focus on alternative systematic trend approaches in mutual fund formats, for retail investors and financial advisors.

Elana Margulies-Snyderman:
Great journey, Cole. So, as a follow-up question, I would love to hear your overall high-level outlook for investing in alternatives and the need for them in portfolios.

Cole Wilcox:
So, in the last 20 years, I've seen a lot of ebbs and flows of the market, and I would say that today, there's probably more of a need for alternatives than there ever have been. This is particularly true of retail investors and financial advisors who tend to have portfolios that are less diversified and much more focused on stock market investing and bonds as being the sole source of diversification. And today, we see an environment where the S&P 500 is at levels of concentration that it really has never seen before in terms of the handful of names driving all of the returns and record levels of correlation between stocks and bonds. So, the degree of diversity that the average investor's portfolio has, and the typical 60/40 thing is probably the biggest threat that it's seen in multiple generations and this is happening at a time when baby boom generation, which is where the bulk of money is at, is going into retirement, or in retirement, and they simply just don't have a long duration left to come back from if we were to have a 2000-2002 type scenario, or a global financial crisis, there's not a lot of time left to recover from a bad sequence of returns in the stock market and poorly diversified portfolios. So, a way to augment that is to build some diversity into the portfolio with different types of alternative investment strategies that can bring in diversification, lower the correlation, and just provide more stability, and more defense against a bad stock market outcome.

Elana Margulies-Snyderman:

Cole, as a follow-up, I would love for you to touch on some of the specific greatest opportunities you see and why.

Cole Wilcox:

Well, some of the greatest opportunities that exist in the market, whether it's from our firm, or from many other great alternative investment fund management providers out there is I think that alternatives in general for retail investors and financial advisors are extremely underrepresented in people's portfolios. I think this is due to a lack of understanding, a lack of education, a lack of awareness, and a lack of how do you put these things together.

And I think one of the greatest untapped opportunities for the average investor is to dig in, and start to understand under the hood what are these great products, and funds, and strategies, and how can you mix and match them together in order to achieve an outcome that can produce better diversity, better returns, lower the volatility, lower risk in the portfolio. There's a really great ecosystem of products that are out in the market that I think people just simply are not fully aware of in this space, since the industry and mutual funds tends to be relatively new, less than maybe a decade old for funds that are out there, that can provide alternative forms of investment strategies and diversity.

Elana Margulies-Snyderman:

Cole, on the other hand, what are some of the greatest challenges you face, and why?

Cole Wilcox:

My experience just working with investors over the last 10 years in this space, especially retail investors, I would say you have to engineer an investment portfolio that can survive the good times and the bad times. On paper, you can architect something that works great in a back test, but you also have to realize that we're working with human beings, and we have FOMO when things are going up, and we're underperforming the market. And you've got to engineer strategies that can provide diversity into the portfolio but can also be perceived as performing well in good times and bad. It's not enough just to perform when the tide goes out and we have a global financial crisis. That happens quite infrequently. You also have to be able to deliver investors satisfaction during good times, and really the only way to do that is to have a mixture of multiple strategies.

I think what you see in the marketplace that do the best and create the highest degree of investor satisfaction are multi-strategy, all weather portfolios. So, I think the biggest mistake that people make in the alternative space is to think that there's a silver bullet, one strategy, one manager, or one style. You put all of your money into managed future, and that's your alternative bucket. And that can work in certain environments, but in other times, it's going to create a lot of degrees of investor frustration when it's not working. So, I think the biggest challenge to having success in alternatives is the portfolio construction process. Are you putting together strategies that are complimentary to one another, strategies that can perform well when others are underperforming, and you're fielding really a team of strategies, as opposed to just looking for a specific, "I've got the fund manager," or, "I've got this single fund" because there is no single bullet. There is no single fund manager. It takes a team get to achieve investor satisfaction for people in both good times and bad.

Elana Margulies-Snyderman:

Cole, we've covered a lot of ground today, and wanted to see if there are any final thoughts you would like to share with us.

Cole Wilcox:

The only final thought that I would bring to the table is just encourage people to dig in, to look at the products that are out there. Like anything, there's a lot of bad product. There's a lot of things that are not going to add value, that are not worth paying fees for, but there is a subset of product that's out there, and investment styles, and strategies that are there, and are great opportunities for people if you dig into them. And I would just encourage people to look around, and think outside the box, and do some homework, and try to find ways that they can reduce risk, and improve diversity in the portfolio, and just be a little bit unique in the way that they go about portfolio construction.

Elana Margulies-Snyderman:

Cole, I wanted to thank you so much for sharing your perspective with our listeners.

Cole Wilcox:

Thanks Elana. I appreciate you having me on today.

Elana Margulies-Snyderman:

And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this, and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.  

Transcribed by Rev.com