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The recent stock market downturn has advisors revisiting strategies that could protect investors from losing a chunk of their portfolios’ value. For some, the answer is alternative investments such as private equity and debt, real estate and infrastructure.
Institutional investors have invested in alternatives for decades, but they have become more accessible to retail investors through various funds in recent years.
Mackenzie Investments recently launched Mackenzie Northleaf Global Private Equity Fund, its fourth private markets offering in partnership with Northleaf Capital Partners Ltd.
Globe Advisor spoke with Michael Schnitman, head of alternative investments at Mackenzie, about alternatives and why advisors should be considering them as part of their clients’ portfolios.
What exactly are alternative investments?
Alternatives, at a high level, fall into three buckets: alternative strategies, meaning those that use shorting or leverage as tools for their investment approaches; alternative assets, which are non-traditional asset classes such as real estate and commodities; and private markets, including private equity, private credit, private infrastructure and specialty finance.
Why should advisors be incorporating alternatives into their clients’ portfolios?
We feel that it’s essential for retail investors to have access to private markets.
Alternatives are important because they can help dampen the volatility in an overall portfolio and they can extend the opportunity set for investors. They provide strong expected returns and lower volatility, untapped diversification and institutional quality management. Consider that publicly traded companies represent only about 2 per cent of global companies, which means 98 per cent of them are private. That in itself demonstrates the opportunity of private markets for retail investors.
What are the risks?
With any investment, manager selection is a risk. You have to look for managers who are experienced with a longstanding repeatable investment process and who know how to invest over different market cycles. There is also liquidity risk with private assets. You can’t get in and out of these funds on a daily basis.
How should advisors use alternatives in clients’ portfolios?
How they’re used depends on what their advisor believes is most appropriate for a client given their age and overall financial plan. Whether they should have more credit or more infrastructure or more equity – or equal slices of all three – that’s up to the advisor.
How should advisors use alternatives amid the current stock market downturn?
Advisors should consider alternatives regardless of what they think will happen in the stock markets.
For example, if your view is that we’re in for high volatility and declining stock markets, longer term, then you want to be in private equity, which has always exhibited significantly less downside and lower volatility than publicly traded securities.
If your view is that this is just a blip, a short-term correction that will be followed by significant growth over the next nine to 18 months, then you also still want to be in private equity, but for very different reasons. If you believe stock markets are going to take off again, private equity has always exhibited hundreds of basis points of outperformance versus publicly traded indexes.
So, when you infuse private market strategies into an overall portfolio construction or asset allocation, you have a smoother risk profile.
This interview has been edited and condensed.
– Brenda Bouw, special to the Globe and Mail
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NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
