The performance of alternative assets is not closely correlated with public stocks, bonds, or funds.
Alternative assets, when properly structured and managed, are great to preserve capital.
Alternative assets can generate stable and predictable cash flows.
Alternative investments are generally uncorrelated with public markets, meaning that adding them to a portfolio can increase diversification and reduce overall portfolio volatility.
By many metrics, the public market is currently expensive. All three major stock indices are at record highs, and the S&P 500’s P/E ratio, equal to the market value per share divided by earnings per share, is well above historical averages. Another popular metric known as the “Buffett Indicator,” measured as the total market cap of U.S. stocks divided by GDP, is also at an all-time high. Whether one believes this is a sign of an impending bubble or not, the public markets do seem expensive.
The low-interest rate environment has taken the wind out of the sales of many traditional safe-haven assets. U.S. government bonds, the safe haven investment of choice for individual investors, are returning a yield below inflation, and many high-quality sovereign bonds from OECD countries have negative yields. What this means is investors can no longer count on a traditional 60/40 portfolio to provide healthy returns and safeguard against capital loss.
A fourth factor we see driving investor interest in alternatives is the spectre of inflation. According to a survey by Bloomberg, analysts believe inflation may rise to as high as 2.9% through June 2021 and slowly taper down to around 2.2% in 2022. Although some economists, like Fed Chairman Jerome Powell, believe inflation is a short-term phenomenon, other economists worry rising inflation may be a more dangerous, longer-term problem.
The fifth factor driving the rise of alternative investments is technology. Institutional investors and ultra-high net worth individuals have realized for decades that alternative investments have the potential to offer returns that are equal to, if not better than, public equities. However, for individual investors, most alternatives were difficult or impossible to access due to a combination of high investment thresholds, a lack of transparency around the market for many alternatives, and the high degree of specialized knowledge required to understand and value investment opportunities. Now, technology-enabled platforms and networks like Moonshot are giving individual investors access to the kinds of alternative investments that were previously only available to a select few.
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