Envestnet PMC, a unit of Envestnet Inc. that develops and delivers investment and portfolio solutions, says increased correlation across asset classes has become a significant concern for investors of all sizes since 2000, and especially since the financial crisis in 2008. To address this, the firm says it has released a liquid portfolio series that uses the latest thinking on asset allocation to more effectively combine asset classes in an effort to build wealth. The portfolios are also designed to combat the volatility that drives many investors out of the market during rocky periods by blending strategic, tactical, and alternative strategies.
The products are based on liquid alternative investments to add another level of diversification to client portfolios by introducing hedge-like strategies, the firm says. In addition, the portfolios employ tactical managers that have latitude to allocate away from equities during down markets.
While not all liquid alternative investments can be classified this way, many are set up to offer a hedging strategy while maintaining certain liquidity, diversification and redemption standards, as required by federal regulations for financial products sold to nonaccredited investors. Unlike a traditional hedge fund, a liquid alternative fund usually must register with the Securities and Exchange Commission (SEC), according to the Investment Company Act of 1940. Like other broad categories of investments, there are substantial differences among specific products classified as liquid alternatives.
The products are often rolled into an employer-sponsored retirement plan either within an actively managed fund-of-funds, such as a target-date fund (TDF), or as a stand-alone option. Managers then take dollars paid into the registered fund-of-funds and invest in dozens of underlying funds, which may or may not be SEC-registered.
In this spirit, the Envestnet Liquid Endowment Portfolios consist of a mix of exchange-traded funds, mutual funds, separately managed accounts and fund strategist portfolios, and are offered at four asset tiers starting at $35,000. The portfolios can be tailored to each asset tier, allowing a broad range of investors access to an appropriate and cost-efficient roster of managers and index-based investments, the firm says.
“If we can reduce volatility and underperformance during down markets, then we believe investors will be more likely to stay the course for the long haul,” says Michael Featherman, director of portfolio strategies at Envestnet PMC. “The [Liquid Endowment Portfolio] framework was inspired by university endowment methods and reinforced by client and adviser demand for a more risk-managed portfolio. Advisers are facing more pressure than ever to deliver better outcomes for clients, and our fully transparent, open-architecture model aims to do just that.”
More information on Envestnet and the liquid portfolio series is available at visit www.envestnet.com.