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Friday, May 09, 2014

UBS' Friedman: Alternative Credit has Cred

Reported by Anastasia Donde

The plethora of new alternative credit funds in '40 Act Country might have a home with UBS Wealth Management's clients. The firm is advising investors to diversify their bond portfolios into alternative credit as a way to boost returns in a rising interest rate environment via its May house view Top Themes report.

The piece, from Alexander Friedman, CIO of Wealth Management Research, said:

"Last year’s rise in U.S. interest rates created concern among investors that holding too large an allocation to fixed-income may result in lower overall returns in the coming year … Without having to incur higher volatility or lower expected returns, one option is to diversify a portion of a portfolio’s high-quality bond holdings into credit alternatives … Alternative strategies that hold both long and short positions in a variety of fixed-income instruments generally carry a net long bias to credit risk, but with little to no interest rate risk. We believe such strategies should outperform investment grade sovereign and corporate bonds this year and thus recommend including them in a diversified allocation."

Options that investors could consider for getting into alternative credit are fixed-income relative value and event-driven strategies, credit long/short hedge funds, funds-of-funds and liquid alternative strategies. Ray Joseph, UBS's head of investment management research, also told MFWire last month that the firm rolled out a model portfolio at the end of 2012 that includes liquid alternatives. He declined to share details of the model portfolios, but said they're built for moderate investors and usually require a longer (e.g. three-year) track record in alternative funds. For more open architecture portfolios, the advisors at UBS are usually open to recommending newer funds, but only if they have a track record in a similar strategy (e.g. a hedge fund) to go by.

UBS's May themes also included advice on going for undervalued tech securities, mid- and small-cap equities in Eurozone countries and tapping U.S. senior loans via open- or closed-end mutual funds or ETFs, among other ideas, The report can be found on UBS's house views website. As one of the top four wirehouse advisors, UBS has $1 trillion in client assets under management.  

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