I was once an equity only investor obsessing profusely over factor optimization. I pretty much ignored other traditional asset classes and alternatives weren’t even on my radar.
Now that I’m a little older and a bit wiser that seems all kinds of crazy. I’d go as far as to say I couldn’t imagine my portfolio without alternatives. And not just a sprinkling here and there – I’m talking about a significant percentage of my portfolio!
Today, I’m thrilled to welcome Julian Klymochko back to Picture Perfect Portfolios to unpack his super duper multi-strategy, multi-asset class all-in-one alternative fund ONEC.
It’s honestly one of my favourite ETFs north of the border and a fund that I’ve added to my DIY portfolio. Without further ado, let’s turn things over to Julian to learn more about ONEC!
Meet Julian Klymochko of Accelerate
I was born in Winnipeg, Manitoba, Canada. Unlike Warren Buffett, I didn’t buy my first stock when I was 11 years old! I didn’t get interested in business and investing until university. I graduated with degrees in engineering and finance (weird, right?) and joined the investment banking division of BMO Capital Markets out of school where I gained experience advising on mergers and acquisitions.
After my time in investment banking, I joined a hedge fund and began my career as a professional investor and arbitrageur in 2009. I cut my teeth on closed-end fund arbitrage, merger arbitrage and convertible arbitrage. Over time, we managed additional mandates including volatility arbitrage, SPAC arbitrage and multifactor long-short investing. In 2015, I won the award for the #1 hedge fund in Canada from the Canadian Hedge Fund awards.
I’m the founder, CEO and Chief Investment Officer of Accelerate, a leading provider of alternative investment solutions. Accelerate helps investment advisors, institutions and individual investors diversify their investment portfolios, manage risk, and improve their portfolio’s risk-adjusted returns.
I am a CFA charterholder and serve on the board of directors of the CFA Society Calgary.
Reviewing The Strategy Behind ONEC ETF (Accelerate OneChoice Alternative Portfolio) with its creator Julian Klymochko
Hey guys! Here is the part where I mention I’m a travel content creator! This “The Strategy Behind The Fund” interview is entirely for entertainment purposes only. There could be considerable errors in the data I gathered. This is not financial advice. Do your own due diligence and research. Consult with a financial advisor.
What’s The Strategy Of ONEC ETF?
For those who aren’t necessarily familiar with an “alternative asset allocation” style of investing, let’s first define what it is and then explain this strategy in practice by giving some clear examples.
Alternative assets represent any investable asset class beyond stocks, bonds, and cash.
The basic idea behind asset allocation is to diversify an investor’s portfolio across different types of investments to reduce the overall risk of loss, while still aiming to achieve a satisfactory level of return.
The purpose of owning alternative investments is to diversify one’s portfolio with the goal of improving risk-adjusted returns.
Here are the 5 main reasons to include alternative investments within a portfolio:
Over the past thirty years, a 30% allocation to alternative investments in a traditional 60/40 stock/bond portfolio:
- Increased returns by 50bps
- Reduced risk by 17%
The Yale Endowment is known for its innovative and successful investment strategy that has delivered strong returns over many years. The key elements of the Yale Endowment’s investment strategy include:
- Diversification: The endowment invests across a wide range of asset classes, including domestic and international equities, fixed income, real estate, and alternative investments such as private equity, venture capital, and hedge funds. This diversification helps to reduce risk and enhance returns.
- Alternative investments: The Yale Endowment allocates a significant portion of its portfolio to alternative investments, which typically have lower liquidity but offer the potential for higher returns. The endowment was an early investor in private equity and venture capital, and it continues to invest heavily in these asset classes today.
- Long-term focus: The endowment takes a long-term approach to investing, with a focus on generating sustainable returns over time rather than short-term gains.
- Risk management: The endowment carefully manages risk through diversification, active management, and careful selection of investments.
Overall, the Yale Endowment’s investment strategy is characterized by a willingness to take risks, a focus on long-term returns, and a commitment to diversification using alternative investments and active management. This approach has enabled the endowment to generate strong returns over many years, and it has become a model for other investors to follow.
Unique Features Of Accelerate OneChoice Alternative Portfolio ONEC ETF
Let’s go over all the unique features your fund offers so investors can better understand it.
What key exposure does it offer?
Is it static or dynamic in nature?
Is it active or passive?
Is it leveraged or not?
Is it a rules-based strategy or does it involve some discretionary inputs?
How about its fee structure?
ONEC provides exposure to a diversified portfolio of alternative investment strategies from six alternative asset classes. It is a long-term portfolio that is rebalanced on a quarterly basis (it is not tactical). It is active in the sense that it does not follow an index. ONEC does not use leverage, however, some of the underlying strategies do.
ONEC’s objective is to improve risk-adjusted returns of a portfolio through increased diversification and increase efficiency through the automation of portfolio construction, due diligence and implementation.
ONEC carries a management fee of 0.2% (with no performance fee).
What Sets ONEC ETF Apart From Other Alternative Funds?
How does your fund set itself apart from other alternative funds being offered in what is already a crowded marketplace?
What makes it unique?
Prior to Accelerate launching ONEC, the only asset allocation funds were for traditional assets, with the main one being the 60/40 stock/bond portfolio.
We wanted to bring innovation to the market by providing the equivalent of the Yale Endowment investment portfolio in a low-cost ETF that is liquid, transparent and accessible to all with no minimum investment.
Each strategy within ONEC accomplishes one or more of the following objectives:
What Else Was Considered For ONEC ETF?
What’s something that you carefully considered adding to your fund that ultimately didn’t make it past the chopping board?
What made you decide not to include it?
We are constantly evaluating and monitoring alternative asset classes and strategies. After two years of an unchanged allocation, we recently exited a bitcoin exposure and replaced it with managed futures and commodities. This change was made to reduce correlation to equities, lower volatility and improve risk-adjusted returns.
One strategy that we have evaluated and did not include is a tail risk strategy. Instead, we included managed futures, which we expect can provide positive returns when markets are in turmoil while also providing positive long-term returns. We believe tail risk, while a good hedge, would be a drag on returns over the long term.
When Will ONEC ETF Perform At Its Best/Worst?
Let’s explore when your fund/strategy has performed at its best and worst historically or theoretically in backtests.
What types of market conditions or other scenarios are most favourable for this particular strategy?
On the other hand, when can investors expect this strategy to potentially struggle?
It is a really diversified allocation so its returns can be expected to be fairly consistent. That being said, it is meant to augment the 60/40 portfolio through increased diversification. By utilizing ONEC with a stock and bond portfolio, we would expect lower portfolio volatility without sacrificing returns. ONEC aims to hit singles – it is not a home run-hitting strategy.
Why Should Investors Consider Accelerate OneChoice Alternative Portfolio ONEC ETF?
If we’re assuming that an industry standard portfolio for most investors is one aligned towards low cost beta exposure to global equities and bonds, why should investors consider your fund/strategy?
“Diversification is the only free lunch in investing.”
Just owning stocks (1 asset), or just owning stocks + bonds (two assets), is not diversified. As we saw in 2022, stocks and bonds can become highly correlated and can produce disastrous results. Historically, stocks and bonds are more often than not positively correlated.
In 2022, the 60/40 portfolio had a devastating loss of about -20%. To many investors, that magnitude of drawdown is unacceptable.
If one wants to reduce the risk in their portfolio while improving returns, then one should consider diversifying by adding ONEC.
How Does ONEC ETF Fit Into A Portfolio At Large?
Let’s examine how your fund/strategy integrates into a portfolio at large.
Is it meant to be a total portfolio solution, core holding or satellite diversifier?
What are some best case usage scenarios ranging from high to low conviction allocations?
ONEC is meant to be paired with a traditional asset allocation.
While alternatives can enhance return, they can also play a key role in a portfolio by reducing volatility.
Adding one uncorrelated asset (two assets in the portfolio) can reduce risk by 29%.
Utilizing six uncorrelated assets reduces risks by nearly 60%.
ONEC adds 6 alternative asset classes to a traditional investment portfolio, providing the adequate diversification that many investors lack.
The Cons of ONEC ETF
What’s the biggest point of constructive criticism you’ve received about your fund since it has launched?
While the asset allocation is sound and performance has been solid, the most common criticism is that the ETF is small and doesn’t have significant trading volume.
That being said, it is important to know that ONEC has RBC as its market maker and they can facilitate any volume an investor needs (no problem doing multi-million dollar orders on the ask). Here is a short video explaining why ETF volumes don’t reflect liquidity.
The Pros of ONEC ETF
On the other hand, what have others praised about your fund?
The Yale Endowment model has proven itself over decades. Diversification works.
ONEC provides instant diversification to all investors at a low fee. It is accessible, liquid, and transparent. ONEC represents the democratization of alternative investments.
Investing in alternative asset classes requires a significant amount of time, knowledge, and energy. ONEC takes all that work away from the allocator, saving them hundreds of hours per year.
Connect With Julian Klymochko of Accelerate
Follow me on Twitter @JulianKlymochko for new news! We are always trying to innovate in the alternative investment space and look forward to helping investors diversify their portfolios.
Visit AccelerateShares.com for more information and research. Sign up to our distribution to get value-added content delivered to your inbox.
Nomadic Samuel Final Thoughts
I want to personally thank Julian for taking the time to participate in “The Strategy Behind The Fund” series by contributing thoughtful answers to all of the questions!
It was great that Julian stopped by to discuss another alternative fund that he offers: (ARB ETF: Review Of The Strategy Behind Accelerate Arbitrage Fund).
Julian was also a guest for the “Investing Legends” series (Merger Arbitrage And Long-Short Equity Investing With Julian Klymochko) which I recommend checking out.
If you’ve read this article and would like to have your fund featured, feel free to reach out to nomadicsamuel at gmail dot com.
That’s all I’ve got!
Ciao for now!