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Inside the world of alternatives

In this thought-provoking video, Anthony Todd, CEO of Aspect Capital and Peter Dymond, Executive Manager of CFS Investments discuss how alternative investments are becoming more accessible to everyday investors and why they should play a greater role in future client portfolios.

  • George Walker
    Hello and thank you for joining our alternatives panel discussion. My name is George Walker, Head of Investment Sales at CFS. At CFS as we are committed and passionate about advisor education. In a moment you'll be hearing from 2 leading experts in the alternative sector, Anthony Todd CEO of Aspect Capital and Peter Dymond, Head of Portfolio Management at CFS.

    In 2020 CFS and Aspect Capital celebrated the 10 year anniversary of our Alliance partnership. The last decade has seen Aspect Diversified Futures Fund deliver strong returns and diversification for the members of this fund.

    I'm delighted to inform you at the end of November we will be adding the Aspect Absolute Return Fund to the CFS menu on FirstChoice. This will sit alongside our existing offering, which includes the Aspect Diversified Futures Fund and the FirstChoice Alternative Multi Manager Fund, a portfolio that consists of portfolio institutional grade managers. In addition, earlier this year, CFS and Aspect reduced the management fee of the Aspect Diversified Futures Fund.

    As I said earlier, I'm joined today by Anthony Todd Co-Founder and CEO of Aspect Capital, which has over $7 billion dollars under management. I'm also joined by Peter Dymond. Peter is the Executive Manager of Portfolio Management at CFS that oversees a team which manages approximately $60 billion dollars of assets across 40 multi manager funds. Peter is also the portfolio manager of the FirstChoice Alternatives Fund. Thank you for joining us today, Peter and Anthony.

    But why don't I just get started. Peter why don’t I go to you first, in investing terms, what are alternatives and what different forms can they come in?

    Peter Dymond
    Thanks George, alternatives are pretty wide scope of strategies. How we tend to think about it here at Colonial First State is that alternatives effectively strategies that are basically uncorrelated to traditional market returns of equities or bonds or market beaters. When we also think of alternates wouldn't necessarily call them an asset like a listed reits or unlisted property, some people do consider them alternatives, but from our perspective it is affectively strategies that use various market instruments in generating a return that ultimately is uncorrelated to any of those particular underlying markets.

    George Walker
    Thanks Pete. Now Anthony, Aspect and CFS recently celebrated their 10 year anniversary of the Alliance Partnership and the Diversified Futures Fund has been running for over 20 years. What type of benefits do alternatives provide to investors’ portfolios and why should they consider their inclusion? Thank you, I mean, from my perspective, the key benefit that alternatives can provide is that performance, which is independent of stock and bond markets.

    Anthony Todd
    Over the past 40 years, investors have benefited from a remarkable rally in stocks and bonds driven by a wide range of tailwinds such as government policy, declining corporate taxation, globalization, and improve productivity.

    Many of these trends have now run their course and as a result of the pandemic, some of them will actually go into reverse, so there's a real risk that investors face now, but the next 10 years are going to be very different from the last 40 and investors will need to find sources of return in their portfolios which don't just rely on rising stocks and rising bonds.

    George Walker
    Thanks Anthony. So to follow on that point, Aspects specializes in managed futures. What are managed futures and how do they fit into the alternative landscape?

    Anthony Todd
    Yeah, actually, I mean managed futures in fact, is one of the longest established sectors in your terms of investment universe and actually has a history going back to the 1940s, although really the sector took off in the inflationary well actually stagflationary conditions in the 1970s. Today managed futures is one of the largest alternative sectors with a wide range of managers applying different investment strategies but there are a few key features shared by the vast majority of those managers so let me just set them out, three of them. The first is that managed futures managers typically try to access opportunities across a very broad diversifying range of deep liquid markets. Standing stock indices and bonds, but also much harder to access markets such as currencies, energies, metals and agricultural.


    Second feature is the managed futures managers are able to capitalize on both rising and falling markets, we are completely agnostic about market direction.

    Thirdly, managed futures managers apply a highly disciplined, scientific systematic investment approach targeted at identifying medium term trends and when I talk about medium term trends, I'm referring to trends over periods of say, two to three months or longer. So as a result of this, those three factors the range of different markets we trade, the ability to be able to capitalize on rising and falling markets, and that very disciplined approach what we're able to do is generate performance, which is independent of stock and bond markets, and can provide investors with a very important source of uncorrelated returns and actually in particular during times of market crisis such as the GFC an important source of risk mitigation.

    George Walker
    As I said before, we were really quite excited to announce that the Aspect Absolute Return Fund will be added to the FirstChoice menu at the end of this month. This Fund uses an alternative risk premia strategy to drive investor outcomes, I’d be interested if you could expand on how this fund compares to others and when an advisor looking to dip their toes into the alternative space, but perhaps they may not be wanting to take on as much risk that has been typically found in this space.

    Anthony Todd
    Yes, we're very excited about the launch of this program. Let's start by setting out what we mean by the term risk premia. Here we’re referring to persistent and intuitive drivers of market behaviour that can be captured systematically. A good example of that is momentum, or the tendency for markets to trend or the tendency for trends in markets to persist. Now that's the main driver of returns in the Aspect Diversified Futures Fund but there are many other risk premia. Then the Aspect Absolute Return Fund we've combined three key families of risk premia, momentum, value and carry, but comprising a total of over 50 individual sub models to identify opportunities across 200 markets in eight different asset classes. It is highly diversified by source of return, both by trading strategy and by market. The most of these models have actually been traded in ADFF for many years, but as you know ADFF is predominantly is overwhelmingly imbalanced towards our trend following ornamental stretches in ARF those are much broader approach across multiple risk premia and as you mentioned, a little bit earlier George, it's that we've achieved this balance at a lower level of target volatility.


    So our view is that this fund can actually provide very nicely actually provide a compliment to ADFF, as I said ADFF is very much there to provide those uncorrelated returns, particularly during difficult market conditions such as the GFC or such as the collapse in energy markets in 2014. Here we have a fund which is targeting a lower level of risk, a lower level of target volatility and is what we would refer to as an absolute return fund. So the aim of generating those very conservative year to year steady returns, that’s why we believe this program could actually just very much can suit those investors you refer to looking for the conservative source of return independent of stocks and bonds.

    George Walker
    Thank you, thank you for that. Now Peter, I’m not going to let you get off this slightly, I direct a question across to you now and this one is on performance of alternatives and this is a question I get quite regularly, so performance of returners is difficult to predict due to the low correlation with other asset classes. What should an investor expect when they invest into an alternative portfolio?

    Peter Dymond
    Ok, this is a very difficult question to actually answer, it’s really dependent on the strategy that investors getting exposure to. So if you look at our FirstChoice Alternatives portfolios is about 7 different strategies within that. All of those strategies effectively take a different approach to generating return, and it really does require an in depth understanding of that strategy, and in what market environments they may or may not perform well.

    For example, we've got one of our managers is Amundi, who typically invests, utilizes a strategy that takes advantage of volatility in markets. What we sold through the COVID-19 sell off is that volatilities quite considerably within markets and it was environment that Amundi was able to generate significant returns. Other strategies and sorry here Anthony but managed futures manager in a very short sharp sell off those that are struggling to deliver performance because of trend hasn’t established itself within a reasonable timeframe. Similar there are strategies that are more systematic in nature that can generate returns on a fairly consistent basis and they’re the ones that you often see available as a standalone option but when it comes to FirstChoice Alternatives we basically package those individual strategies together to ultimately give a more consistent return that is uncorrelated to other any particular markets such as equity markets. There is a wide range of strategies and it does require an in-depth understanding of the strategy.

    George Walker
    Excellent and so when I think about time, the hedge fund space they typically or historically cost more than traditional fund strategies and they have often limited to institutional investors, so I’d like to ask both you to comment on this, but I’ll start with you Pete, I would like you to comment on the evolution of the alternative space and the new offerings that make alternative investments more to accessible to every day investors.

    Peter Dymond
    Yes, certainly, hedge funds or alternative strategies that have had a journey in terms of accessibility. So we've been investing in alternatives for about 12 years now and going back prior to that hedge funds and alternatives were largely inaccessible to the individual investor for a number of reasons or is predominantly are in structures that are really available overseas and not domestically, and also in pooled vehicles where there is very high performance fees and your money was commended or locked up for long periods of time, none of those really make makes it attractive for local domestic investors.

    However, as time goes by, we found that the local market here that there’s been more and more offerings being made available by institutions that are accessible to us as investors whether at an institution in their own right and ultimately we’re able to package that up and for individuals to invest in so it has been a journey and today we can see that there is in the local market a very large range of strategies available. Additionally, as time has gone by, we’ve actually seen the price of those strategies come down quite considerably. There wasn’t really much competition out in the marketplace amongst hedge funds because of the uniqueness and exclusivity that existed back a decade ago but now they’re becoming more and more mainstream accessible and performance fees have come down, management fees have come down and in many cases getting to comparable levels to other more mainstream strategies.

    George Walker
    Thank you, I might hand over to you Anthony to comment.

    Anthony Todd
    Yes, I mean it’s interesting just listening to Peter’s comments there because I think that’s very much the heart of why we set up Aspect Capital 23 years ago, 23 years ago we could see the industry shifting we could actually see increasing interest in these alternative investments such as managed futures and risk premia but you’re absolutely right, they were very hard to access. So in terms of principles behind the setting up of Aspect Capital we wanted to address those concerns when the three concerns were very much first of all, the level of fees and as you said Peter, fees have come down significantly over the course of the last few years and they are still traditionally more costly than traditional fund strategies, but that’s a result of the sophistication of the strategy it is the infrastructure required to run the programs as well as the level of research which is actually required. The 2nd shift I’ve seen of course in the 23 years is that level of transparency, for 23 years ago when we were setting up Aspect, these systematic funds were frequently referred to as Black Box, they were completely impenetrable, nobody had any idea what was going on inside them, and that has shifted remarkably over the course of the last two decades. Today we work very hard with CFS to make absolutely sure that our investors understand in detail our research, our models and our performance, the drivers of performance and work hand in hand with CFS and our end investors to make sure there is full transparency.

    George Walker
    Thank you. So changing gears now and as we reflect on the typical portfolio in Australia there’s a huge amount allocated typically to equities, but as we know, this exposure can be fraught with risk. So in what scenarios do alternatives allocations help investors and at the same time when will alternative portfolios not produce the desired result? I might start with you once again, Peter.

    Peter Dymond
    This is a really good question George. I'll start with the second half of it, when do alternatives not produce the desired results. In many cases it starts with what is the investors expectations and if I look over the journey, we've been on with alternatives, it's certainly a times had mixed results and at times there can be frustrations and I think if I look over those periods of frustrations and it can be largely when equity markets doing tremendously well and we’ve seen quite a couple of those years in the last decade. It’s in those environments where alternatives simply can’t keep up with that sort of market. So people say, why do I bother? But equally so, there’s other environments can be in the selloff in markets where it gives considerable protection and we’ve seen that in a number of our strategies or similar if there’s a trending type market it’s when we see the likes of managed futures strategies power through and have delivered very strong results.

    So I’d start with the investors, they need to have a clear expectation around the strategy that they are in and an understanding of what markets it does perform and doesn’t and that will really depend on the strategy and I’ll pivot back to your first question, where do those alternative allocations help investors? Well its if you look at the current environment, as an institutional investors one of the biggest dilemmas we have is we’re seeing equity markets at all the time highs we’re seeing cash return on cash is at all-time lows basically zero, same for fixed income portfolios. So the challenge is where do you allocate your capital in order to generate a return where you’re not exposed to the risks associated whether it’s an increase in bond yields or another stock in equity markets when you’re already have a lot of equities. So it’s exactly the environment we’re in today that alternatives need to be seriously considered as they are effectively strategies that aren’t linked to any particular market, but certainly take advantage of the instruments in those markets ultimately generated returns for investors. So I’d say today is one of those environments that you need to be serious.

    George Walker
    And Anthony.

    Anthony Todd
    Yes I mean, I think I’d like differentiate between the performance of managed futures such as ADFF and the risk premia fund such as the Absolute Return Fund. If we look at ADFF it’s designed to capitalise on multi month trends in markets. So what’s a challenging environment for a fund such as that is the environment where we see markets rival range bound there are no trends to capitalise on, or whether a very sharp sudden reversals. On the other hand, where can managed funds actually benefit investors is particularly during times of persistent erosion of principle in major market so multi month or multi year setbacks in stock markets or bond markets or commodity markets, so by example the tech wreck 2002 to 2003, the GFC in 2008 or the energy crisis in 2014.

    Now let’s move onto the Absolute Return Funds the alternative risk premia fund is a different set of conditions that can be challenging. This fund would underperform in an environment where we’re seeing rapid regime shifts. For instance, rapid oscillation between a risk on and risk off environment that certainly world provide challenges for a fund such as this. On the other hand, where can this fund actually benefit is to be able to generate performance which is independent of stock markets and independent of bond markets. Again, Peter already covered, but we know we've seen occur period of remarkable performance in stocks and bonds for many, many many years. There is a risk now that we're moving into a different economic regime in a different market regime and this regime it'll be very important that investors diversify their portfolios and identify funds which are just not simply reliant on rising tide of stocks and bonds.

    George Walker
    Thank you, that was very interesting. Thank you very much Peter and Anthony for your insights into the alternative sector. I would say that you know education is the forefront of everything that we do when we're constantly trying new mediums and this sort of Covid world to connect and educate our audience so I hope you found today interesting and if you have any questions, please reach out to myself or your local CFS representative and I'd just like to thank you for taking the time to join us today, we've enjoyed having you.



    ADFF – Aspect Diversified Futures Fund
    ARF – Aspect Absolute Return Fund



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    This document has been prepared by Aspect Capital Limited (‘Aspect Capital’). Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the issuer of Aspect Diversified Futures Fund Class A (‘the Fund’) ABN 94 601 819 404. Colonial First State have appointed Aspect Capital as the investment manager for the Fund. The Fund is offered by Colonial First State through an alliance with Aspect. Colonial First State also issues interests in products made available under FirstChoice Investments and FirstChoice Wholesale Investments. Colonial First State is a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 (the Bank). The Bank and its subsidiaries do not guarantee the performance of Colonial First State products or the repayment of capital from any investments. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including Colonial First State or any member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This document provides information for the adviser only and is not to be handed on to any investor. It does not take into account any person’s individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) before making any recommendations to a client. Clients should read the PDS and FSG before making an investment decision and consider talking to a financial adviser. The PDS and FSG can be obtained from or by calling us on 13 18 36. Stocks mentioned are for illustrative purposes only and are not recommendations to you to buy sell or hold these stocks. Past performance is no indication of future performance.


    © Colonial First State Investments Limited 2020



Colonial First State is pleased to confirm that Aspect Capital "Inside the world of alternatives" 2020 (on-demand) has been accredited for a maximum of 0.50 Continuing Education (CE/CPD) hours by Portfolio Construction Forum, the specialist, independent, investment continuing education, accreditation and certification service.


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Unless otherwise specified, this document has been prepared by Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) based on its understanding of current regulatory requirements and laws as at the date of publication. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), to the maximum extent permitted by law, no person including CFSIL, accepts responsibility for any loss suffered by any person arising from reliance on this information. CFSIL is the issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale Pension, FirstChoice Employer Super offered from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. It also issues interests in the Rollover & Superannuation Fund (ROSCO) and Personal Pension Plan (PPP) offered from the Colonial First State Rollover & Superannuation Fund ABN 88 854 638 840. CFSIL also issues other investment products made available under FirstChoice Investments and FirstChoice Wholesale Investments, other than FirstRate Saver and FirstRate Term Deposits which are products of the Commonwealth Bank of Australia ABN 48 123 123 124, AFS Licence 234945 (CBA). The investment performance and the repayment of capital of CFSIL products is not guaranteed. This document provides information for the adviser only and is not to be handed on to any investor. It does not take into account any person’s individual objectives, financial situation or needs. The Target Market Determinations (TMD) for our financial products can be found at and include a description of who a financial product is appropriate for. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) before making any recommendations to a client. Clients should read the PDS and FSG before making an investment decision and consider talking to a financial adviser. The PDS and FSG can be obtained from or by calling us on 13 18 36.

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