Is It Possible to Have Both Safety and Returns?

Brittney Barrett  |

The volatility of late has led investors to invade everything from safe havens to food related stocks. Some have been taking risks on bargain bins, while others are looking toward investing in the Volatility Index.  Any angle an investor chooses appears to have a definite upside and downside.

Snapping up weak financial stocks can offer a major upside, while investing in gold or the franc is dangerous in that it holds the threat of a potential expiration date. Other safety options offer weak returns in exchange for stability. Ideally, an investor would be able to shield themselves largely from volatility without having to sacrifice returns.

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This win/win situation seems to undermine the very attitude it takes to play the market, but options like this do exist. A number of investment banks have observed this demand and begun to launch relatively insulated funds that promise more returns than plodding blue-chips. In this category is the Goldman Sachs Dynamic Allocation fund (GDAFX). Given investors hunger for safety and bigger pay outs, it’s no surprise that the fund has garnered in excess of $337.6 million in assets since it was first introduced in 2010.

Essentially the fund intends to create long-term capital appreciation in excess of what is offered by the stable utilities and treasuries many invest in during a choppy market. Investors who might want to consider the fund should not be looking for the major returns they might garner with a high-risk investment like biotech but rather a mid-paced capital appreciation alongside considerable risk diversification.

The fund achieves the diversification by investing largely in ETFs, futures, swaps, structured notes and derivatives. The latter two often confound even advanced investors who might struggle to develop a portfolio with such a wide range of asset classes across a multitude of markets. Equities and commodities both domestically and overseas both spread cash across markets for safety and help produce large yields are emerging market surpass domestic growth.

Additionally, the fund can rely on leverage or the borrowing of derivatives to help drive pay-outs. So far, it appears to be effective as the fund has returned nearly 12 percent on the year in spite of the larger market ending about flat.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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