The Case for Liquid Alternatives

GMO argues that rising stock-bond correlations and macro shocks necessitate an allocation to liquid alternatives to achieve true portfolio diversification.

Key Takeaways

• 1.Traditional 60/40 portfolios are facing synchronized drawdowns as stock and bond correlations rise materially.
• 2.Private equity and credit may offer 'smoothed' returns due to appraisal pricing, but often share the same underlying risk exposures as public markets.
• 3.GMO's ALTA fund (GAAGX) uses a multi-strategy approach including merger arbitrage, carry, and trend-following to provide uncorrelated returns.

Table of Contents

• Key Takeaways
• Not All Alternatives Are Truly Diversifying
• Liquid Alternatives Offer Diversifying Returns and Portfolio Flexibility
• Liquidity is a Strategic Advantage
• GMO Alternative Allocation: Designed to Deliver a Structured Approach to Liquid Alternatives
• Early Results Support the Framework
• Cumulative Performance

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