Why alternative strategies offer a smoother ride for investors.
For decades, the “60/40 portfolio” (60% equities, 40% bonds) has been the gold standard for diversified investing. It’s the model followed by most large fund managers in New Zealand and around the world. But is it still the best approach for today’s investors, especially those seeking steady growth without the emotional roller coaster of equity markets? At Saxe Coburg, we believe there’s a better way: alternative investment strategies that deliver equity-like returns, but with less risk and volatility.
For decades, the “60/40 portfolio” (60% equities, 40% bonds) has been the gold standard for diversified investing.
The limits of the traditional 60/40 portfolio
The classic 60/40 portfolio is built on a simple idea: balance the higher risk (and higher return potential) of shares with the stability of bonds. In theory, when shares fall, bonds should cushion the blow. But reality is more complicated.
Equity markets can go through long periods of suboptimal returns, steep drawdowns, and high volatility. For many of our clients, especially those nearing or in retirement, these swings are not just uncomfortable, they can be financially damaging. Meanwhile, the bond portion of the portfolio, once considered a safe haven, now offers little compensation for the risk taken. Over the long term, bonds have delivered low returns, and in certain environments (like rising interest rates), they can lose value alongside equities.
At Saxe Coburg, we see neither leg of the traditional model as truly appealing in today’s environment. That’s why we focus on alternatives.
What are alternative investments?
“Alternatives” is a broad term, but at its core, it means anything outside the mainstream mix of shares and bonds. This could include hedge funds, private equity, real assets, or more flexible investment strategies that don’t fit neatly into traditional categories.
The key difference is flexibility. Most mainstream managers are bound by strict mandates: they must stay fully invested in shares and/or bonds, regardless of market conditions. Alternative managers, on the other hand, have more tools at their disposal. They can:
- Focus on subsets of the market where they have specialist skills and can have an edge, for example they may specialise in infrastructure or micro-cap stocks
- Implement strategies with asymmetric return characteristics, to create investments with limited downside risk but significant upside potential.
- Short sell, hold cash and use derivatives to hedge against market falls
Our strategy is to look for managers who aren’t tied to rigid models or corporate mandates. Many invest their own money alongside ours, and their focus is on delivering real performance – not just tracking an index.
Our portfolio: 80% alternatives, 100% client focus
Currently, around 80% of our clients’ portfolios are invested in alternative strategies. We don’t focus on any single type of alternative asset. Instead, we invest with a diverse range of managers, each running uncorrelated strategies. This diversification is key to reducing risk. The more independent sources of return you have, the less likely your portfolio is to suffer large losses in any one market event (check out our drawdown graph during significant market events here).
We also pay close attention to liquidity. While some alternative investments require a longer commitment (such as private funds with seven-year lock-ups), the majority of our portfolio is designed to be accessible, so clients can access their funds if their circumstances change.
Performance: Equity-like returns, less volatility
Over the past 5 years, our alternative-focused strategies have delivered returns comparable to equity markets, but with less volatility than the 60/40 balanced portfolio. Our goal is simple: better the long-term gains of traditional portfolios, but with a smoother ride. We’re not eliminating risk (no investment can), but we are working to reduce it, relying on skilled managers who can adapt to changing markets and use all the tools available to them.
Over the past 5 years, our alternative-focused strategies have delivered returns comparable to equity markets, but with less volatility than the 60/40 balanced portfolio.
For example, during periods of market stress, our portfolio’s will have a range of strategies, some of which tend to make more money when markets fall than when markets rise, and others which are entirely uncorrelated. Our April 2025 Monthly Report took a closer look at how the 2025 INFINZ awards highlighted traditional fund managers’ strong but volatile returns, and how our alternative portfolios delivered comparable results with lower risk and less emotional turbulence.
Why alternatives matter for investors
Our clients have responded positively to our alternative-focused approach, especially during periods of market volatility or economic uncertainty. They value the smoother journey and the knowledge that their portfolios are not at the mercy of every market swing.
Looking ahead, we believe alternatives will play an even greater role in New Zealanders’ portfolios. As the investment landscape evolves, flexibility, diversification, and risk management will become even more important.
Changing perceptions
There are still misconceptions about alternatives, that they are too complex, illiquid, or risky. With the right managers and careful selection, alternatives can offer better risk-adjusted returns and greater resilience. Our message is simple: alternatives are not just for institutions or the ultra-wealthy. They are a practical, effective solution for any investor seeking growth without unnecessary risk.
Get in touch with Mark or Sam to discuss how alternative strategies can help you reach your financial goals.