Your portfolio can stay positive in difficult times.
Stay positive, people tell you. On a day-to-day basis, that’s easier said than done.
When it comes to your investment portfolio though, there’s a solution that focuses on staying positive regardless of what the markets do.
At Heritage Wealth Partners, we focus on purpose-built investment opportunities for our clients. These aren’t the off-the-shelf products that you’ll find everywhere else. In fact, the Altos Fund is unique to our clients.
The ideal Altos investor is looking for a strong annual return in USD, regardless of how the overall market performs. With nothing to get excited about from yields in low-risk assets, Altos offers annual returns of around 12% in USD with a risk-mitigated strategy that removes almost all exposure to how the overall markets perform.
Unicorns have many uses.
The team that manages the Unicorn Fund has a strong track record in identifying exciting growth stocks that offer long-term wealth creation opportunities. That same research can be applied to a totally different trading strategy, which seeks to achieve small monthly gains in a portfolio.
You may have heard of options strategies before.
Generally, these are thought of as high-risk, YOLO-style strategies that aim to achieve immense profits with the risk of blowing up along the way. While it is certainly true that options can be used in this way, they are versatile trading instruments that can be used for other things too.
Like, for example, the strategy used in the Altos Fund. This does not use options in a high-risk fashion, but rather in clever trading strategies designed to achieve small returns per trade on a consistent basis.
But how do they do it?
The methodology in the Altos Fund has been developed by the managers using their own money. They have spent many hours refining and back-testing the approach, testing different levels of volatility and risk-tolerance.
The strategy aims to achieve a 1% return on the portfolio every month. As the return compounds every month, this equates to nearly 12.7% per year in US Dollars. That’s in line with a regular year on the JSE, except this is a hard currency return.
Ignoring the recent run in the Rand which has been unseasonably strong, this return means that Altos should beat any diversified exposure on the JSE in the long-term.
The goal in the fund isn’t to use options to generate large returns on specific positions. Instead, the idea is to write options and earn the premium for doing so (usually around 2% of the value), with strategies in place to mitigate the risk of the position not working out as planned.
Rather than trying to be greedy on each trade, the idea is to close out the position once the return objectives are achieved.
One of the key mechanisms in the fund is the use of cash secured puts, which are options that are written on shares that the team has assessed as being oversold i.e. cheap relative to fair value.
This trade earns a premium on the option and if the trade works out, the premium is stashed in the bank and no further cash is needed. If the stock drops below the strike price, the fund is required to buy the share at that strike price. However, the fundamental research in the Unicorn Fund has already determined that the team is happy to own the stock at that price because it would be even cheaper than it was before.
The goal of the fund is to earn small regular returns rather than take long-term views on specific stocks, so further option trades are used on such stocks to trade out of the position while earning premiums along the way. In very rare cases, a few positions may be needed to achieve a satisfactory outcome. Usually, the team achieves the required return in one trade.
The trades do carry some risk of course, because these returns of over 12.7% per year in US Dollars cannot be achieved without risk. However, on a risk-weighted basis, this is an incredibly attractive portfolio compared to the returns on money market funds, government bonds or pure equity portfolios.
The benchmark for the portfolio needs to be better than cash but lower than equity exposure, so the managers compare themselves to the higher of the global risk-free rate (i.e. government bonds) and the global inflation rate.
Perhaps the greatest appeal lies in the ability of the portfolio to achieve these types of returns every year, almost regardless of how the market moves. In a great year for equities, the Altos will underperform the market. In a tough year, the Altos should outperform it.
It’s worth noting that the average returns on the S&P500 over the past two decades are well below this level, so achieving this return in USD is a solid outcome in any portfolio.
We utilise the Altos Fund for qualifying clients as a complementary strategy to the Unicorn Fund, diversifying the investment and reducing overall volatility of returns.
The Altos Fund is only available through Heritage Wealth Partners. There’s nothing else quite like it available to South African investors. Get in touch today and let’s discuss whether you qualify for this exciting investment.