"Volatility isn't necessarily a bad thing, it creates opportunities. It's the correlation that kills you in the end," he said.
Performance of VIX vs FTSE All Share over 6-mths
Source: Financial Express Analytics
The allocation to alternative assets in the Rathbone Total Return Portfolio and the Rathbone Strategic Growth Portfolio is at 40 per cent and 30 per cent respectively. That's the highest allocation since the funds were launched in 2007.
Coombs warns that markets are becoming increasingly volatile as risk-on/risk-off gains traction, meaning risk is spiking more dramatically than before. He added that there is no longer such thing as a risk-free asset.
He said: "Many alternative strategies look attractive versus other asset classes [given this backdrop]. Equities seem to be trading at fair value; sovereign debt looks like its flirting with bubble territory, and some corporate bonds look expensive."
Coombs has added to some lowly-correlated strategies in both portfolios, including macro trading, multi-strategy and FX-trading.
Coombs' economic outlook is gloomy, and he says the west is entering into a new investment period.
"High volatility will stay over the next three years. Economic cycles will be short, and we’ll be back to a boom and bust climate, snap recoveries and dips," he says.
Rathbone Total Return and Strategic Growth vs £LIBOR 3m over 1-yr
Source: Financial Express Analytics
Financial Express data shows the two funds have outperformed their benchmark sterling LIBOR index in the year to 1 September.