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Digital Subscriptions > The Hedge Fund Journal > Issue 142 – Aug 2019 > Barbelling Diversifying Strategies by Liquidity

Barbelling Diversifying Strategies by Liquidity

Diversifying alpha + idiosyncratic alpha = outperformance

In the summer of 2018, the investment world felt poised for change. By many measures, the major asset classes had reached what appeared to be relatively full valuations against a backdrop of a less certain future environment. With deference to those who previously coined “crisis alpha” we provided some thoughts on potential inflection point alpha constituents. As markets became more unsettled and alternative managers started to give back significant returns, we further began to pontificate on the possibility of a “December to Remember”. Be careful what you ask for, because the markets certainly provided that!

Fast forward to the remarkable asset recovery in 2019 which brought the equity markets to new highs and uncertainty once again seems to beckon. The clarification around the status of the US economy and central bank have removed some clouds on the economic horizon, but much remains unchanged. The environment since Q4 2018 may be the new normal, but it has certainly been a challenge to allocators seeking to insulate their portfolios from adverse price and liquidity events which are typically prevalent around market shifts. Despite the violent sell-off and the euphoric rebound, the need to diversify traditional and alternative investment portfolios is greater than ever. Having looked previously at the diversifying alpha portion of the portfolio, it is perhaps useful to examine the balancing, return seeking side of the portfolio which is longertenored, idiosyncratic alpha. It is this combination of two powerful return streams that seems to resonate with investors as they try and find upside returns while minimizing negative skew.

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Informing the Hedge Fund Community. With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry.