How to stop your portfolio from being “coronered”

Listen to the entire recording here 



(MH): Hello, my name is Michael Houghton I’m the chair of the Lucerne Alternative Investments Fund, and with me is Jerome Lander, who’s the portfolio manager for the fund. Given the recent turmoil in markets and the catalyst that has been spoken about but not reacted to that caused that turmoil, it’s appropriate that we discuss with Jerome not only the markets, but also the Lucerne Alternative Investments Fund and why it’s been able to withstand some of that turmoil.

(MH): So, Jerome first of all, welcome. And what is the Lucerne Alternative Investments Fund?

(JL): Well, the Lucerne Alternative Investments Fund is a managed fund that is broadly diversified across a number of different underlying strategies, which is designed to be for circumstances like this and beyond, to provide investors with the potential for very attractive returns in a very difficult environment, market environment. And so it’s really designed for times like we’re dealing with today.

(MH): So what are the defensive characteristics of LAIF?

(JL): Well, LAIF’s, defensive characteristics are designed around low correlation to traditional market risks. So, most investors portfolios are obviously comprised of things like equity and bond risk and these things are basically things that we aim to, especially at the moment, minimise the effect of through the Lucerne Alternative Investments Fund investments fund. We have low exposure deliberately to those risks in order for the the fund to be a great diversifier to those risks which investors often normally hold in their portfolio to some degree.

(MH): For a few months now, in the last LAIF quarterly video, Lucerne and yourself had views on the markets that we were working towards positioning LAIF for and in the month of February LAIF has done exceptionally well by comparison to markets. Did you want to talk through how we’ve positioned the fund for that purpose.

(JL): Absolutely, so the fund does have a lot of flexibility, and we have been of the view for some time that markets really are considering the risks out there. And one of those risks was coronavirus. And there are many others. We think that the markets have been inflated, market prices have been inflated by central bank action and that continues to be the case today with massive central bank action and stimulus in markets. But asset prices in the long term, we really struggle to see how they’re sustainable. So there’s that challenge and a risk. We’ve been able to through the design of this particular design of this strategy And what if they were to invest in really be able to avoid quite a lot of. And so we deliberately positioned the fund to be relatively uncorrelated to those traditional markets and to be well diversified across a number of different strategies which are capable of making money in all weather type phases, irrespective of what market do. So we’ve seen the fund as a result in 2020, that’s far be up despite equity markets crashing in late February. We really have not seen any substantive effect from that at all in the strategy and in this fund. It’s a really terrific result that validates our work and our positioning ahead of time. And as I said, we have actually recognized coronaviruses quite early has been one of the risks that could catalyze a market correction. But we do think risk generally is under appreciated more broadly and that investors really are most investors have really discounted equity in bonds and it early up before these events have really upped their equity risk in response to the option of bonds, which looks so unattractive. Indeed bonds do look unattractive from a long term view because a very low yield, meaning that long term returns are likely to be very low. respectively from those from those asset classes that is the result, because they’re not thinking more broadly outside the square, they’ve chased equity risk. And they’re being punished for that now quite badly, unfortunately. But this strategy has been designed to enable us to to really get away from that and deliberately designed for the specific purpose of being a compliment and a diversifier and the sorts of returns that doesn’t depend upon those traditional market risks. So I think it’s a really great strategy in that respect.

(MH): The fund, to clarify for investors in January was up 2.75 percent. And in February, it’s estimated to only be down about 0.3 or 0.4 percent compared to the market in February. The ASX 200 in particular being down 7.7 percent. So to your comments there, Jerome, the fund has done exceptionally well. It’s been well positioned to not only take advantage of the underlying investments that it makes, but to also, as we’ve always spoken of, be a defensive allocation in an investor’s portfolio. What do you see happening from here then with what has taken place with the stimulus that is being announced by the federal government, with the reserve banks in a couple of countries cutting interest rates? Do you have any comments and want to add on that?

(JL): I think it remains a very concerning environment going forward. I have actually published on the coronavirus. I think the Coronavirus is going to be the story of the year, unfortunately. It’s a tremendous risk to us as people and it’s a tremendous risk to the economy. And it’s also as a result of those things, tremendous risk to markets. Now, it’s complicated by the fact that central banks aren’t sitting around. They’ve actually decided to engage in a tug of war. It’s central bank versus the government versus the Corona virus in 2020. So market actions and prices can be greatly influenced by what central banks do from here. But, the big picture for investors is that it is a very risky environment and a lot of investors really don’t want to be invested in something which can lose and a lot of money from here. And when I say a lot of money. I’m not talking about a few percent, I’m talking about tens’ of percentage points. If things really do go badly, as is obviously a risk right now in my view. So it’s incredibly important to actually try and align investors with the objectives of the particular portfolio they’re in right now. And to have your genuine sources of diversification in portfolios and I think LAIF has those particularly valuable attributes, which is incredibly rare out there.

(MH): Thank you Jerome, if you would like to invest or find out more about the Lucerne Alternative Investments Fund. Please refer to our website  or feel free to call the Lucerne team. – (03) 8560 1440.

W: Lucerne Alternative Investments Fund



MH: Michael Houghton – Executive Director & Chairman

JL: Jerome Lander – Portfolio Manager