Displaying items by tag: alternatives

The financial advisor space is extremely competitive which means it’s quite important to differentiate and identify what makes you unique. This is even more the case given today’s macroeconomic reality of high rates, inflation, and uncertainties. Advisors and investors may have been spoiled by the last couple of decades of low rates, providing a generous tailwind for stocks and bonds.

For WealthProfessional, Steve Randall discusses why becoming comfortable with alternative investments could fuel growth for advisors in this new era. Given that the upside for stocks and bonds is limited in this era, there is likely to be more opportunities in areas like responsible investing and alternatives, where the landscape is less defined.

In addition to these trends, Randall also identifies actively managed ETFs, virtual assets, and impact investing as other growth areas that could provide differentiation for advisors. 

Overall, he believes that asset managers will introduce new products in these areas in recognition of growing interest and demand. Over the last couple of years, alternative investments have generated positive returns and dampened portfolio volatility while stocks and bonds have delivered negative returns. 

This outperformance should continue especially if rates and inflation remain elevated, and advisors are recommended to get familiar with new offerings. 

Finsum: Alternative investments are gaining popularity for a variety of reasons. But, the most important is its outperformance in the last couple of years while stocks and bonds lagged.

Generation Z is defined as being born in between the mid 90s and mid 2010s. Older members of this group are starting their careers and beginning their investing journeys. This group is shaped by events like the 2008 financial crisis and the pandemic. They also are the first generation to grow up with the Internet and have a much more intuitive relationship with technology especially when it comes to managing finances.

In a piece for USA Today, Jon Stojan explains why alternative investments are gaining traction with Generation Z. Some of the unconventional options include investing in art, wine, farmland in addition to more known options like cryptocurrencies and precious metals. 

According to a survey from the Lansons Group, only 10% of Americans have invested in alternative assets but 30% of Gen Z investors have done so, highlighting the appeal of alternatives.

The most commonly cited reasons are a potential for high returns, hedging against inflation, and interest in tangible, enduring value. However, there are some drawbacks to these asset classes especially as their performance is unproven through multiple market cycles unlike stocks and bonds. Additionally, they tend to come with higher costs and less liquidity.

Finsum: Alternative investments are gaining traction with Generation Z investors who are looking to invest in asset classes beyond just stocks and bonds. Examples include cryptocurrencies, precious metals, artwork, farmland, and wine.

Following the abysmal performance of stocks and bonds in 2022, it’s understandable that alternative investments have been gaining strong traction over the past year. Moreso when considering that alternatives delivered better returns while reducing volatility. 

In a CNBC article, Kate Dore discusses survey results from the Financial Planning Association that show nearly 30% of advisors are investing in ‘alternatives’ for their clients. These advisors mentioned diversification, lower portfolio risk, and higher returns as major factors in this decision. 

In contrast, 30% of advisors are aware of alternative investments but are electing to not put client funds in these vehicles. Many of these advisors cited higher fees and expenses, lower liquidity, higher borrowing costs, and a lack of transparency as major concerns. Another concern is that clients are not able to easily access these funds in case of an emergency.

There’s a wide disparity in the asset class as it includes a variety of categories like hedge funds, private equity, real estate, commodities, and structured products. Therefore, even more due diligence is required given lower levels of regulation and oversight. 

Finsum: Alternative investments are increasingly being embraced by advisors, especially after their strong performance in 2022. However, some continue to eschew the category due to a variety of concerns.

In a piece for ProfessionalPlanner, Michael Collins lays out some pros and cons of investing in alternatives. Overall, he takes a positive view of the asset class as it can boost returns and diversification. Additionally, it can allow investors to take advantage of short-term market inefficiencies which is more difficult through conventional investing and the most popular assets like stocks, bonds, or real estate.

Alternative investments are seeing strong growth over the last decade due to regulatory changes, and technology leading to increased access for private markets. In 2022, the asset class performed particularly well especially relative to stocks and bonds which were both down double-digits. 

One challenge is that alternative investments come in many different forms. Some examples include short-selling, a long-short portfolio, global macro, event-driven, arbitrage, private equity, venture capital, and private market investing. 

There are some drawbacks to consider. For one, there is less liquidity and transparency especially relative to more popular asset classes. Additionally, many alternative strategies do employ leverage which can be a double-edged sword during periods of economic or monetary stress. Another challenge is that alternative investments typically have higher fees than traditional investments which can erode returns over long periods of time. 

Finsum: Alternative investments are seeing a surge in interest due to their strong performance in 2022 and wariness about the economy and traditional asset classes.

In remarks at the BNY Mellon Pershing Institute covered by InvestmentNews’ Jeff Benjamin, former SEC Chair Jay Clayton shared his thoughts on the current regulatory environment, and why he believes that the SEC is doing many investors a disservice by preventing them from investing in private markets.

Clayton served as SEC Chairman under former President Trump between May 2017 and December 2020. He drew some differences from his tenure and the current administration, noting that “it’s pretty clear we’re in a very highly business-skeptical and commercial-skeptical regulatory environment.” Currently, Clayton serves as the nonexecutive chair at Apollo Global Management. 

Clayton also sees alternative investments as another area where the SEC is being overly restrictive, and it’s hurting retail investors by depriving them of opportunities that are available to institutional and high net-worth investors. He said that it’s hypocritical that retail investors are able to buy leveraged ETFs or options but not private investments that have significantly less risk.

In order to make alternatives available to all investors, he said that regulators would have to change their approach, and asset managers would also have to introduce appropriate products. 

He did acknowledge a conflict of interest, since Apollo has a major presence in private markets.

Finsum: At a recent conference, former SEC Chair Jay Clayton shared his thoughts on the current regulatory environment, and why he believes alternative investing needs to be further democratized.