GSAM: In the August Selloff, Liquid Alternatives Worked

Sep 15 2015 | 6:12pm ET

New research from Goldman Sachs Asset Management suggests liquid alternatives performed relatively strongly during August’s market gyrations. 

As outlined in the latest issue of the company’s GSAM Connect, liquid alts are defined as “daily liquid investment strategies that, like hedge funds, seek to deliver: (1) differentiated returns from those of core asset classes; (2) the potential to reduce overall portfolio risk; and (3) the potential to mitigate the effects of severe drawdowns, particularly in equities.”

GSAM tracks the performance of such liquid alternatives through five liquid alternative peer groups, believing that by paring down the universe of liquid alternative funds to those that employ hedge fund-like strategies and categorizing them in a traditional hedge fund framework allows investors to better evaluate performance, and see how “alternative” they really are.

According to GSAM, liquid alternatives performed strongly in August. Three of its liquid alternative investments peer groups lost less than 1% over the most volatile stretch of August, as measured by the S&P 500’s closing price high on August. 10 and its low on August 25. While the S&P 500 fell a total 11% over this period, the GSAM LAI Relative Value Peer Group, Tactical Trading/Macro Peer Group, and Event Driven Peer Group, lost -0.6%, -0.6% and -1.0%, respectively.

Meanwhile, the company’s Equity Long/Short Peer Group lost less than half the S&P 500’s decline (-5.2%) – and also beat almost every individual S&P 500 Index sector. The GSAM LAI Multi-strategy Peer Group, comprised of funds incorporating several different alternative investment approaches, fell by less than a quarter the S&P 500’s loss (-2.5%).

GSAM suggests also viewing liquid alternatives’ performance in the context of steeper losses by a range of other asset classes. Several widely-tracked global equity indexes posted losses in high single digits, while several widely-tracked bond indexes posted negative returns as well. 

Traditional “balanced” portfolios, GSAM noted, also endured losses. By comparison, all five of the GSAM LAI Peer Groups outperformed a traditional 60% S&P 500 and 40% Barclays Aggregate balanced portfolio during the August selloff as well as year-to-date.

GSAM concludes that the August results underscore the potential for liquid alternatives to help drive returns in well-diversified investment portfolios over the long term. 

The full report is available here.

In Depth

An Interview With Harvest Volatility Management's Rick Selvala

Mar 23 2017 | 5:39pm ET

Several years of extremely low interest rates have pushed some investors into equities...


'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

SEI: Private Debt Coming Into Its Own

Mar 8 2017 | 9:24pm ET

The explosive growth of private debt over the past few years has caused the lines...