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Part 2 of 2 – Replacing fixed income with alternatives

In part two of a video interview, Alexandre Garrabou von Trotha explains why he has stocked up on absolute return funds, especially for his most conservative clients.

“In the fixed income part of our portfolios, the prices are very high in general, and the non-correlation between fixed income and equities is gone,” he says.

Garrabou von Trotha has decided to take on this problem by diverting a significant part of his fixed income portfolio to absolute return funds. “In our most conservative fund-of-funds we have an allocation of more than 30% to alternatives,” he says. “This is mainly long/short and market-neutral equity funds, and a little bit of multi-strategy. The results have been very good so far, as we have tried to find funds that proved in 2011 they can preserve capital.”

While Garrabou von Trotha has included absolute return funds in his portfolios to mitigate the risk of a severe drawdown, he can’t completely insulate himself from such an event. So is it probable that conservative clients will panic when that happens?

“Identifying the right risk profile of a client is key to that question.” And Garrabou von Trotha thinks his bank his been doing a good job as far as risk profiling is concerned. “When we had a market correction in the summer, we saw almost no outflows.”

Click here to see part one of the interview, in which Garrabou von Trotha talks about the changing risk appetite of Spanish investors.

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