TORTOLA, British Virgin Islands, Feb. 11, 2021 /PRNewswire/ -- The stable core of a portfolio consists of 'bedrock investments'. Their role is to generate stable, consistent returns over time. Ideally, the returns are not correlated to the returns of the risky asset. With this stabilizing force, the portfolio can then take greater levels of risk in its growth asset allocation.
Traditionally, fixed income instruments have played this role. Bonds provide the stability and consistency to preserve a portfolio's returns while the riskier equities hunt for higher returns. However, unfavorable changes in correlation between equities and bonds over time nudged investors to evaluate the suitability of other potential bedrock investments.
"We suggest investing in life settlement as a strong bedrock candidate on the basis of the following historically observed attributes," stated Tony Bremness, Managing Director of Laureola Advisors.
Using the Laureola fund as a proxy for life settlements, the chart above shows the distribution of a life settlement fund's annualized returns over multiple 3-year periods. The fund's returns tend to be higher than that of the S&P 500 Index and 3-year US Treasury yield since May 2013. This highlights the consistency of performance (and potential outperformance over equities) over a 3 years.
Here, the stability of monthly returns is highlighted. The narrow range of returns for a life settlement fund suggests returns volatility closer to that of fixed income when compared to S&P 500's wide dispersion of returns.
Mr Bremness notes that "life settlements as an investment can meet the first requirement of a bedrock investment – its returns are stable and consistent over time."
The second requirement is that the returns of a bedrock investment should have little or no correlation to the returns of the risky asset. This independence is prized because such assets stabilize a portfolio during periods of poor performance in the risky assets. In the chart above, the Laureola fund as a representative for life settlements has recorded low levels of correlation with other asset classes. Of note are the low correlations to equities and bonds.
"Low correlations are great but what matters is what happens when risky assets dive. The behavior we want to see out of bedrock investments is independence during those risky asset drawdowns," Mr Bremness explained. The worst 10 months of S&P 500 would have caused an average monthly decline of -6.6% while the Laureola Fund would have produced an average return of -0.1%. Dec 18 was a coincidence where Laureola revalued its portfolio upon discovery of aggressive life expectancy assumptions provided by the independent Life Expectancy underwriters. The revaluation was not linked to S&P 500 movements.
Mr Bremness summarises, "We believe that the life settlements exhibit characteristics of a bedrock investment. With the Laureola fund as a representative, an investment in life settlements has stable consistent returns over time and its returns are uncorrelated to a wide range of risky assets. With a bedrock in the portfolio, an investor can liberate his/her portfolio to take on risk. This is especially meaningful navigating the rich but risky platter of opportunities in the post-pandemic investment landscape."
Contact: Tony Bremness | +1 (888) 498 0966 | [email protected]
SOURCE Laureola Advisors
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