Displaying items by tag: uncorrelated

The term beta represents an investment’s volatility relative to the overall market and is a concept that experienced investors understand well. Beta measures the sensitivity of an investment to overall market movements and is a measure of systematic risk, with the market typically represented by a broad index like the S&P 500. 

High beta stocks exhibit more volatility and are typically growth stocks, while low beta stocks are less volatile and often include value stocks in defensive sectors. But this approach should be used when thinking about alternatives because they are being used to balance a portfolio.

Beta can change over time due to economic conditions and changes in a company's operations or industry. When assessing alternative investments, combining beta with correlation provides insight into an investment's potential role in a portfolio, enhancing diversification and risk management.

Finsum: You don’t need complicated financial models to assess beta, and integrating this historical return factor could greatly improve portfolio performance. 

What is the best way to manage a portfolio in an era with less structural disinflation, and how can you improve upon the 60/40 in the current environment 

 The traditional 60/40 portfolio, consisting of 60% stocks and 40% bonds, has long been a benchmark, balancing growth from stocks with stability from bonds. However, the historical success of this model relies on a period of declining interest rates and favorable economic conditions in the U.S., which may not persist in the future. 

As interest rates stop declining and inflation potentially rises, the performance of the 60/40 portfolio is expected to be less impressive, especially during high inflation periods when energy and commodities tend to outperform. To better manage portfolios in this new environment, it’s advisable to diversify beyond the 60/40 mix by including assets like commodities, real estate, and cash equivalents to hedge against inflation and provide more stability during economic shifts.

Finsum: We have seen an increased correlation between stocks and bonds in the most recent years suggesting alternative diversification to manage volatility. 

In 2023, the housing market reached unprecedented heights, with median home prices soaring to an all-time high of $389,800.

While mortgage rates reached 40-year highs there was still robust demand as the microeconomics of the market continued to put upward pressure on prices. Experts predict that this trend will continue into 2024, as mortgage rates are expected to decline due to the Federal Reserve’s plan to lower benchmark interest rates.

REITs, traded on stock exchanges, allow investors to gain exposure to real estate without direct property ownership. They distribute at least 90% of taxable income to shareholders through dividends. 

While real estate investment trusts (REITs) are popular for diversifying portfolios and generating passive income, the private real estate market also offers rewarding opportunities. They can have higher IRR with more active positions but carry increased liquidity risk. 

Finsum: Investors should be extra cautious of liquidity risk in high interest rates, but the returns could certainly be worth it. 

Investors are finding increasingly innovative ways to invest in private markets and interval funds are one of the latest trends developing in this area. Interval funds enable individual investors to commit to strategies that invest directly in private markets, while listed private equity ETFs invest in public firms offering private-market strategies. 

There has been a spike in interest for alternatives and uncorrelated assets, benefiting interval funds. High-net-worth investors now have access to private capital managers previously exclusive to pension funds and sovereign wealth funds, but accessing and managing the required capital remains a challenge. Private-market funds, including variously named private market access and opportunity funds, address this need and saw significant growth with 11 new products launched in 2022, a trend continuing in 2023. 

Although these funds offer unique advantages like access and diversification, they come with high costs, potential liquidity issues, and commitment periods that can lock up capital, necessitating careful consideration by investors.

Finsum: Liquidity lock up should be highly considered for these types of alts, and the current high rate environment can exacerbate this problem. 

Monday heralded the unveiling of a new investment suite by the firm, iCapital Model Portfolios, aimed at elevating advisors' asset-allocation strategies to a new echelon of diversification. 

Lawrence Calcano, iCapital's Chairman and CEO, voiced enthusiasm about the debut, highlighting its innovation in integrating alternative investments into client portfolios. Among the offerings stands the iCapital Multi-Asset Portfolio (iMAP), strategically engineered to blend income and growth through a selection of top-tier private equity, private credit, and real asset funds. 

These portfolios, actively curated by iCapital's research team, aim to deliver total returns with diminished volatility compared to traditional assets, assuaging client concerns during market fluctuations. With aspirations to broaden the lineup and accessibility to over 100,000 financial advisors, iCapital aims to perpetuate the simplification and enrichment of the investment experience for advisors and clients alike.

Finsum: Model that can capture uncorrelated returns a necessary niche in the evolving landscape.