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When GMO's Rick Friedman posted his thought provoking piece, 60/40 Portfolios Face Double Trouble Ahead on February 26, a mere week after U.S. markets had made all-time highs, I immediately realized what the implications for typical stock/bond investors would be in the sell-off that was starting to unfold. Stocks had been in a nearly 11 year bull market since bottoming in 2009; with rates close to zero and a flat yield curve, bonds had also experienced an historic rally in recent years. Investors relying on fixed income portfolios with any duration or credit risk would not receive the cushion they were expecting in the carnage that ensued. This has unfortunately been proved true in the month since Friedman published his piece.
Enter Sal Bruno, Chief Investment Officer and Managing Director of IndexIQ ETFs, a New York Life company. Sal joined IndexIQ in 2007 from Deutsche Asset Management just a year after the founding of the firm (back in those days, it was an independently run firm; New York Life acquired IndexIQ in late 2014). If IndexIQ is best known for packaging the types of strategies preferred by hedge funds within an ETF wrapper, it is largely because of Bruno's work over the last 13 years. Case in point: Its 2 largest ETFs are the IQ Merger Arbitrage ETF (NYSEARCA:MNA), with nearly $800M in AUM and the IQ Hedge Multi-Strategy Tracker ETF (NYSEARCA:QAI), which has more than $700M in assets.
And while these strategies are largely targeted at institutional managers, Bruno thinks they can have a place in retail investor portfolios too. "We think everyone should have some base allocation to liquid alternatives," explains Bruno. "As we've seen the last couple of weeks, market moves can be pretty swift and so putting these types of strategies into place after these extreme moves can be quite difficult."
Click play above to listen to my full conversation with Sal Bruno.
This article was written by
Disclosure: I am/we are long MNA, QAI, QED, QLS, MCRO, HFXI, IQSU, IQSI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Sal Bruno is long MNA, QAI, QED, QLS, MCRO, HFXI, IQSU and IQSI.
Jonathan Liss doesn't have positions in any of the ETFs discussed in today's show.