Adding non-correlated returns to your portfolio is here to stay.

Why we started KYBAC

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Now is the time to add non-correlated returns to your portfolio.

The past three years of the market have been very interesting, if not tense, leaving many wondering where the next shoe will drop. In 2020 and 2021, we experienced a “Pandemic.” Without rapid fiscal and monetary policies worldwide, economies and markets would surely have collapsed. Now in 2022, after the height ofCovid, world economies began to open. However, easy monetary policies had injected so much cash to support economies and markets the emergence of inflation was essentially assured. This effect caused an immediate reaction by the Federal Reserve Bank as they raced to reverse current monetary policies to increase interest rates dramatically in such a short time. The result was that stock and fixed-income markets moved in tandem, thus creating another situation, like the pandemic, where no hedge was available to protect your portfolio from a market sell-off.

These phenomena are what I call “false diversifications,” believing traditional asset allocations would provide a diversifiable hedge for a portfolio in a time of stress but fails as correlations become positive. It has taught many experienced investors a painful lesson in the importance of holding genuinely diverse and uncorrelated investments for the long term in their portfolio.

It is important to note that correlation tends to be non-stationary and changes overtime in traditional asset classes. During periods of market stress, the correlation between theoretically uncorrelated may turn positive, as evidenced over the past several years. So, we ask ourselves, how should one allocate their portfolio to protect against such positive correlation behavior? Especially with the global investing environment facing an uncertain and more volatile future, investors should be more deliberate about allocating sources of uncollated returns.

Today examples of what investors may consider uncorrelated assets include fine art, wine, and farmland. The prices of these assets increase year after year regardless of economic fluctuations; however, they are illiquid and exhibit scarce availability.

We have abetter alternative. My partners and I believe young bourbon/whiskey barrels are the next alternative asset class. For centuries bourbon/whiskey barrels had been sold to private investors. However, this investment opportunity was limited to insiders and large dealers. Today the value of bourbon/whiskey barrels continues to grow at record levels to meet increased demand. This growth and the emergence of an ever-improving secondary market prompted us to form Kentucky Bourbon Aging Company LLC, “KYBAC.”

KYBAC’s primary mission is to mainstream, institutionalize, and offer this unique uncorrelated asset to accredited investors worldwide. The young bourbon/whiskey will appreciate as it ages/matures, and gains will be harvested opportunistically by the most efficient means possible.

This asset class will provide market performance return in an upward trending market and outperforming return in a downward trending market, thus providing the vital portfolio diversification attributes we have been searching for against downward trending markets. An example of this benefit is exhibited by the excellent Sortino Ratio of KYBAC’s portfolio from inception compared to standard stock indices. The Sortino Ratio measures the risk-adjusted return on a portfolio by comparing the performance relative to the downside deviation.

This strategy and the non-correlated diversification benefit separate KYBAC from other alternative assets.      

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