By Omnigence Asset ManagementLast updated
This paper explores the limits of the Sharpe ratio, which penalizes all volatility equally, and makes the case for incorporating the Sortino ratio as a superior measure of downside efficiency. Using a 6% minimum acceptable return and a 4% risk-free rate, the analysis compares major alternative asset classes. Results show farmland, lower mid-market private equity, timberland, and private credit deliver consistently stronger downside-adjusted returns, while bonds and infrastructure fail to meet return thresholds. In today’s higher-volatility, inflation-sensitive environment, allocators can improve portfolio resilience by prioritizing strategies with superior downside efficiency without sacrificing long-term return targets.