Yet many of the financial advisors who use them are “doing it all wrong,” said Nadia Papagiannis, the Director of Alternative Investment Strategy with Goldman Sachs Asset Management, which has made a big push into liquid alternative funds. “Every survey out there shows advisors want liquid alternatives for diversification.” Yet most of the money is going into a single type of strategy: long-short equity, which seeks to provide some cushion to falling markets by shorting a select group of stocks alongside a traditional portfolio.
from Wealthmanagement.com http://wealthmanagement.com/impact-2014/drowning-liquid-alts
This is a very important observation that needs to be addressed by all financial advisors. It does not make sense to diversify through just buying long/short equity managers which reduces your stock beta. It would be cheaper and more efficient to just cut the beta in your portfolio. If you pick long/short managers, it should only be done when you can get alpha cheap not less beta.
The better strategy is to hold true diversifying strategies like managed futures. Now managed futures is not always the solution. The key is trading many markets across many asset classes so you can get changing exposures beyond stocks and bonds.
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