Colonial First State’s FirstChoice Alternatives portfolio has hit a milestone of $150 million in funds under management (FUM) this month as more investors seek to diversify their portfolios through allocations to non-traditional investment strategies.

FirstChoice Alternatives is part of a broader alternatives portfolio of $1.1 billion.    The balance of the portfolio is comprised of the alternatives allocation within the FirstChoice multi sector portfolios.

Colonial First State’s Head of Investments Scott Tully said the attraction of the FirstChoice Alternatives fund is the prospect of equity like returns with lower volatility and low correlation to equity markets.

“Alternatives typically generate a greater proportion of their return from ‘skill’ than simply market returns, which is important to investors concerned about the prospect of lower returns from equities,” he said.

“As a result, we are seeing advisers recommend a greater proportion of their client’s portfolios to alternatives.  Advisers also see the benefit of recommending a portfolio in which the underlying investment strategies have been selected by a team focused on manager selection and portfolio construction.  This has led to a 400 per cent increase in flows to FirstChoice Alternatives year on year to September 2016.”

Launched in 2014, the portfolio aims to generate a before fees return of the Reserve Bank of Australia cash rate plus 4 per cent by investing in a diversified portfolio of alternative investment strategies.

Mr Tully noted FirstChoice Alternatives was gaining traction at the expense of some of the single strategy funds because of its significantly lower level of volatility.

“A lower return environment and the efficient portfolio construction benefits that FirstChoice provides are factors fuelling the growth in this fund.”

Colonial First State’s Alternatives portfolio manager, Guneet Rana, added that as investor interest continued to rise in the asset class, further additions were being made to the portfolio.  In October the London-based discretionary macro manager, H₂0 Asset Management, was added to the portfolio taking the total to seven investment managers in FirstChoice Alternatives. H₂0 is partially owned by Natixis Global Asset Management and has $A14.4 billion in funds under management.

“Discretionary macro managers bring diversification benefits with their returns not only lowly correlated to equity and bond markets but also across macro managers,” Ms Rana said.  “The addition of H₂0 is expected to improve the risk return profile of the portfolio.

“Through diligent research and risk analysis, H₂0 comes to a view on the direction of various economic factors and trade the relative value within bond, currency, credit and equity markets.  We see this attribute as an important addition to our portfolio.”

Source: Colonial First State

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