By Bruce W. Fraser  

Alternative investments such as managed futures should play a larger role in portfolio diversification, but they are still not well understood by advisors and investors, according to Genworth Financial Wealth Management.

"With a volatile market, investors need to better understand true diversification, specifically the allocation of assets across different classes," Gurinder Ahluwalia, president of GFWM, said during a round-table discussion in New York City this week that sought to demystify alternative investments. "The conditions over the last few years have proven that traditional approaches may not be enough and that there is a need for investors to employ new strategies, potentially including alternative investments. Financial advisors are a critical component to helping investors incorporate alternatives into their portfolios."

The discussion, led by Ahluwalia, featured Anne Lester, managing director and senior portfolio manager with J.P. Morgan Asset Management's Global Multi-Asset Group (GMAG), Jon Sundt, CEO and president of Altegris Advisors, and Michael Abelson, senior vice president of investment and product management with GFWM.

Lester also cited the importance of alternatives in building a diversified portfolio for clients, but added that advisors need to be cautious. "You need to have clear expectations and goals about the risks you're trying to mitigate," she said.

Investors are demanding huge risk premiums, she said, and J.P. Morgan is now overweight in risk assets. "It's still an environment constructive for risk," she said.

A huge deleveraging process is under way "across the market landscape that is ongoing, and will take another three to five years to be completed," Lester said.

"Corporations have finished it, individuals are part way through it, and governments haven't started it," she said."We haven't seen the repudiation of (government) debt yet."

Sundt discussed the growth of alternatives, specifically addressing the need for investment portfolios to include broader diversification into non-correlated assets.

"Advisors want more alternatives, but don't understand them," he said. "They need to find a trusted source to get educated and find a platform of managers to choose from."

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