Managing Market Volatility with a Broader Allocation Strategy

Managing Market Volatility with a Broader Allocation Strategy

While generally unsettling for investors, market volatility like we’ve seen so far in 2025 provides at least one silver lining: a reminder of the critical role diversification plays in a resilient portfolio.
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When markets get choppy—as both stocks and bonds have this year—it becomes clear that relying on just a few sources of return can leave investors exposed to bigger swings and unwanted surprises.

Diversification isn’t just a buzzword—it’s a foundational strategy for managing risk and staying on course through unpredictable conditions. And in today’s environment, that means thinking beyond the traditional mix of equities and fixed income. Incorporating less correlated assets—like liquid alternatives—can help cushion portfolios during turbulent times and support more consistent outcomes over the long run.

In this article, we’ll explore how expanding your approach to diversification can help better prepare your portfolio for whatever the markets throw at it next.

Why Liquid Alternatives?

Liquid alternatives offer exposure to investment strategies that often behave differently from traditional long-only equity or bond positions.

They can include long/short equity, global macro, merger arbitrage, and multi-strategy approaches, among others—spanning global markets and asset types. These strategic differences and exposures to currency and commodities asset classes have historically made liquid alts strategies less dependent on the direction of long-only equity and fixed income markets, which can help investors more efficiently manage risk across different market conditions.

The Seeds Global Liquid Alts Model

The Seeds Global Liquid Alternatives Model is built to provide diversified returns relative to traditional market exposures.  

Designed to complement a balanced equity and fixed income allocation, the model aims to reduce drawdowns and lower overall portfolio correlations, enhancing long-term risk-adjusted performance. Rather than relying on any single strategy, the model blends multiple approaches to balance risk, access non-traditional sources of return, and introduce exposures that can perform independently of broader market trends.

The model uses a combination of Exchange-Traded Funds (ETFs) and mutual funds to implement the strategies. These vehicles provide liquidity, diversification, and access to specialized alternative strategies without the need for direct investments in derivatives or illiquid assets.

The model also embraces a risk management approach that emphasizes diversification across strategies, dynamic allocation adjustments, and ongoing monitoring and rebalancing:

  1. Diversification: Spreads investments across multiple asset classes and strategies to mitigate the impact of any single market event.
  2. Dynamic Allocation: Adjusts the allocation based on market conditions and the relative attractiveness of each strategy.
  3. Monitoring and Rebalancing: Regular reviews of portfolio performance and risk metrics, rebalancing quarterly to maintain the desired risk/return, correction, and drawdown profiles. 

Reducing Equity/Fixed Income Correlation

By allocating to liquid alternatives, investors gain a complementary piece of the asset allocation puzzle—one that exists outside the typical 60/40 portfolio structure.  

The goal isn’t to replace traditional holdings, but to enhance them with strategies that can help provide stability during periods of market stress. These differentiated return sources can help reduce the impact of significant drawdowns and contribute to a more resilient overall portfolio.

As of April 23rd, 2025, the Seeds Liquid Alts model has achieved a 5.8% cumulative return year-to-date, significantly outperforming its benchmark return of -0.25%. Over the same period, the S&P 500 declined by 8.2%, while the Bloomberg U.S. Aggregate returned 1.8%.

Cumulative Performance Over Time (Factset as of 4/23/25)

This strong relative performance highlights the potential benefits of incorporating liquid alternatives into a broader asset allocation framework. The benchmark—a moderate allocation fund comprising 40% equities and 60% fixed income—represents a conventional diversified core portfolio.  

In contrast, the model’s positioning illustrates how diversifying beyond the standard allocation approach can help generate positive returns even when traditional markets are challenged.

In addition, the liquid alternatives model offers an advantage through its low correlation to traditional asset classes.  Unlike a conventional 40/60 portfolio, which relies on the balance between equities and fixed income for diversification, the model uses strategies designed to behave differently across various market conditions. This differentiation helps broaden the sources of return and contributes to a more stable portfolio experience. 

The graph below illustrates the daily standard deviations of the model compared with the 40/60 benchmark, highlighting the model’s ability to reduce volatility and enhance risk-adjusted outcomes.

Standard Deviation (Daily) Over Time (Factset as of 4/23/25)

A Thoughtful, Diversified Alternative Exposure

Liquid alternatives can play a valuable role in a well-diversified portfolio, offering exposure to strategies that behave differently from traditional asset classes.  

The Seeds model offers this exposure through a thoughtful, risk-conscious approach and framework—designed to help investors stay on track toward long-term goals while reducing sensitivity to broad market volatility.

If you’d like to learn more about The Seeds Global Liquid Alts Model, please reach out to our team to discuss.

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This article focuses specifically on the Seeds Liquid Alternatives model because the strategy directly aligns with the topic of managing portfolio volatility, especially relevant given current market conditions. It is featured to illustrate how alternative strategies can complement traditional portfolios, not based solely on recent performance. Seeds offers a variety of investment strategies, each with distinct investment objectives, risk profiles, and performance characteristics. Investors interested in additional strategies managed by Seeds can request comprehensive performance data or further information through our team. Full performance details and data for all investment strategies managed by Seeds are available upon request at www.seedsinvestor.com/contact. Comparisons to the S&P 500 Index and Bloomberg U.S. Aggregate Index are intended only for informational purposes and not to imply the model is directly comparable in terms of investment objectives, risks, or expenses. Investors should carefully consider these differences before making investment decisions. All investments involve risk, including the potential loss of principal. Past performance is no guarantee of future results. Diversification strategies and alternative investments do not ensure profit or fully protect against loss in declining markets.