Alternative ETFs have changed the game

ETF leader explains why putting alts strategies in ETF packages has flipped the alts script for retail investors

Alternative ETFs have changed the game

While mutual funds have played a major role in the democratization of alts strategies, the entry of ETF providers into the alts space has made access to alts easier than ever. Through a traditionally low-cost vehicle, retail investors can access alternative asset classes and strategies like never before.

At tomorrow's WP Advisor Connect covering the rise of alternatives, speakers will address the role ETFs are playing in the contemporary alternatives space explaining how these vehicles can provide access to strategies once reserved for the accredited investor. Krista Hicks, senior vice president of business development at Horizons ETFs and one of the event speakers, shared a preview of her insights with WP and explained why Women in ETFs decided to play a major role in the event, which is free to advisors.

“We want to share the kind of alternative strategies available now on the retail channel from an ETF provider’s perspective,” Hicks says. “I really want advisors to be aware of how they can access alts through ETFs. There is a real value in alternative ETFs which can provide lower cost and a much more liquid exposure to alternative investments strategies.”

Hicks says that as advisors reconsider the traditional 60/40 portfolio asset mix for clients, particularly in light of its failures to protect clients during the most recent equity selloffs, they should look to alternative ETFs as a means of adding that sleeve of alts exposure. That sleeve, she says, can offer some of the uncorrelated benefit for a retail client without forcing them to shoulder unduly high fees or cope with the illiquidity that often comes from other alternative investments. They’re a means to dip a client’s toe in the pool and show them how alts can serve them better. They can gain an understanding of alternatives through an ETF without locking them into something large, unwieldy, and illiquid.

Hicks says that some alts strategies, such as real estate, infrastructure, private equity and private debt, are simply too illiquid to fall into an ETF package. Others, however, such as long-short equity stances, market neutral stances, currency plays and commodities holdings can all be wrapped up with an ETF bow and offer non correlated returns. She says that even managed futures, hedge fund performance, or index replication strategies are liquid enough to fall into an ETF package.

These strategies, she says, are extremely useful as advisors gradually move their clients away from a 60/40 allocation. She says the shift to 40/30/30 may be too high for most dealerships and making the shift suddenly could give an investor whiplash. At the same time, clients need to be ready for a world where the nature of fixed income has changed dramatically while longevity increases. Alternative ETFs can help offer income streams and ballast in an easier to explain and manage package, perhaps filling 10 per cent of a portfolio at most.

Hicks’ panel at the WP Advisor Connect is supported by Women in ETFs, a longstanding partner of WP’s in ensuring our events reflect the gender diversity of the industry.

“The Women in ETFs mandate is to connect, support, and inspire women in the ETF industry,” Hicks says. “Women in ETFs has built a pipeline of female leaders in the investment industry, using conferences like this to amplify female voices.”

Hicks says that the panel discussion, and an increased role for women across events like this can help move the industry forward, by ensuring the best voices from across the industry share their insights and improve the overall educational value of the event.

The WP advisor connect, Hicks says, is an opportunity for advisors to reconnect and learn from one another. Even those advisors still skeptical about alternatives should consider learning more as roaring equities and low-yielding fixed income has left investors with lopsided portfolios. Alternatives could be a tool to rebalance client portfolios and start a conversation about their goals and how to achieve them.

“We hope that by listening to our discussion advisors will gain some insight as to the benefits of diversification through asset allocation,” Hicks says. “They can learn how alternatives, both illiquid and liquid, can complete and optimize the client portfolio.”

To hear more from Krista Hicks and other thought leaders in the alternatives space register for the WP Advisor Connect now.