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Mitigating Investment Risk In Times Of Change – Forbes

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Now that Joe Biden has been sworn in as President and the new Congress has been seated, many alternative asset investors are wondering what the new administration and shift in the balance of power in Congress might mean for their portfolios.

Following is a look at five alternative asset trends and developments to potentially watch out for this year under the new Biden administration. But first, let’s take a brief look back at how alternative assets performed in 2020.

While traditional asset classes like stocks rode a wild roller coaster last year — plunging to bear market lows in the spring when the COVID-19 pandemic was first declared and economic lockdowns began, only to soar to new records by the end of the year — many alternative assets experienced relatively minor volatility while generating positive ROI. In this regard, alternative assets helped bring some stability to investors’ portfolios during times of tremendous uncertainty.

1. Consumer Sentiment is Optimistic

Navigating major health, financial and social disruptions that were encountered in 2020, consumer sentiment is holding as consumer expectations are optimistic for the not-too-distant future. The University of Michigan Survey of Consumers Index fell slightly in January to 79 (from 80.7 in December) in what the report called a “trivial decline.” This modest drop was attributed to optimism about COVID-19 vaccinations, the quick substitution of remote work, and the prompt distribution of federal benefits for consumers.

In particular, there are high hopes for additional fiscal stimulus, consumer delinquencies and defaults were lower than many economists forecasted last year, and the savings rate skyrocketed as many consumers scaled back spending and socked away emergency funds. Surveys of Consumers chief economist Richard Curtin reported they anticipate consumers will reach into their savings and spark a significant gain in spending in late 2021. All these factors could signal good news for alternative assets in 2021.

2. Is Commercial Real Estate Due for a Rebound?

Commercial real estate (CRE) was hit hard last year as stay-at-home orders nationwide forced many businesses to shift to a work-from-home model. While it’s hard to predict what the future of the traditional office will look like in the post-COVID world, there are signs that business travel, at least, could be headed for a strong bounce-back this year.

Despite the pandemic-related pullback, the central tenets to business travel remain intact, which could bode well for the hard-hit hotel industry. The same holds for vacation travel once the pandemic is under control. Hotels of sub-standard quality in less-desirable locations could be challenged, however, as demand is no longer anticipated to exceed supply as it did before the pandemic.

The outlook is a little cloudier for retail CRE, however. In just six months, the pandemic accelerated the adoption of online shopping by five years, according to one estimate. The adoption acceleration has been most pronounced among older Americans. The question: Will these consumers be eager to return to brick-and-mortar retail stores when it’s safe to do so, or will they become so comfortable with e-tailing that they never return to their old shopping habits?

3. What About Single-Family Rentals?

Institutional investors have been slow to adapt their successful multi-family rental strategies to the single-family rental market. As a result, the single-family rental market has been largely institutionalized over the past decade, which has resulted in a low-single-digit net penetration for institutional investors.

This could change over the next few years as private property owners start selling rental properties to professionally managed investment companies. If the work-from-home trend continues, single-family rentals could become even more attractive.

4. Is the Future in ESG Investing?

2020 saw environmental, social, and corporate governance (ESG) investing become a major trend. Sustainable investing assets grew from $12 trillion in early 2018 to $17.1 trillion in early 2020, according to The Forum for Sustainable and Responsible Investments. This represents a 42% increase and a compound annual growth rate of 14%. ESG criteria and shareholder engagement address hot topics involved with climate change/carbon emissions, sustainable natural resources/agriculture, labor, diversity, and political spending. In the US SIF Foundation’s 2020 biennial Report on US Sustainable and Impact Investing Trends, the largest percent of 384 money managers and 1,204 community investment institutions conveyed their motivation for ESG investments are a focus because it helps them manage portfolio risk.

5. DOL Ruling Could Boost Private Equity

After plummeting during the second quarter of last year, global private equity (PE) buyout deals increased by nearly 20% during the third quarter to $58 billion. The ongoing scarcity of companies looking for private equity investors or buyouts could help drive the PE market even higher this year. Premiums will vary across sectors with higher multiples paid for companies that are more recession-resilient (like technology and healthcare) and lower multiples paid for a business that is more susceptible to downturns (such as retailers and oil and gas companies).

An important development last year could have a major impact on the PE market going forward. Last June, the Department of Labor ruled that private equity can be included in 401(k) plans. Access to PE funds may now be appropriate if they’re part of a diversified vehicle like a target-date fund. This helps level the field for retail investors who have historically been excluded from investing in PE funds. As a result, there could be a growing prevalence of PE investing in the $6 trillion U.S. 401(k) retail market.

A Final Thought

Finally, it’s worth pointing out that with the 10-year U.S. Treasury at or near historic lows, its use as a counterbalance to equity risk in a well-diversified portfolio has probably diminished. When considered alongside soaring equity prices, this could make the traditional 60/40 equity/fixed-income portfolio weighting worth reconsidering.

With new leaders come new priorities and as the Biden administration enacts new policies it is likely the stock market will react. In this environment, alternative assets could play a greater role in creating a well-diversified portfolio. Alternatives typically offer returns that are uncorrelated to equities and fixed income, thus helping mitigate portfolio risk. Investing through a self-directed IRA gives individuals a vehicle to make these types of non-traditional, alternative asset investments a reality.

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While the US remains open to foreign investment, certain investments are likely to face enhanced scrutiny – Lexology

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Investors be warned. In 2020 the U.S. Department of the Treasury issued comprehensive new regulations to implement the Foreign Investment Risk Review Modernization Act (“FIRRMA”). These include provisions that address the treatment of indirect investments through investment funds that should be carefully considered by anyone contemplating such an investment in a U.S. business.

When analyzing potential investments, it is imperative to consider regulatory regimes that may impact the relevant transactions. The Committee on Foreign Investment in the United States (“CFIUS”) is a multi-agency group that reviews foreign investments in certain U.S. entities and assets to determine whether they present a national security concern and, if so, whether that concern can be mitigated. If such concerns cannot be mitigated, or the parties are unwilling to agree to the mitigation proposed, CFIUS may recommend that the President prevent or reverse the transaction or take other steps to alleviate the potential threat to the country. In a year that has seen other jurisdictions introduce new foreign direct investment oversight, the U.S. government implemented FIRRMA, which contains the first significant revisions to CFIUS’s process and jurisdiction in more than a decade.

“Parties to certain transactions are obliged to file a declaration or notice to CFIUS in advance of completing their transaction.”

Perhaps most notably, while participation in the CFIUS review process historically has been voluntary, pursuant to FIRRMA parties to certain transactions are obliged to file a declaration or notice to CFIUS in advance of completing their transaction. Failure to submit such declarations to CFIUS in advance of completion may result in significant penalties – up to US$250,000 or the full value of the transaction, whichever is greater. In addition, under the regulations implementing FIRMMA, certain non-controlling investments in U.S. businesses with sufficient connections to critical technologies, critical infrastructure, and/or sensitive personal data of U.S. citizens (so-called “TID U.S. businesses”) can trigger the jurisdiction of CFIUS and may be subject to mandatory reporting requirements.

CONCLUSION

Parties considering cross-border transactions, as well as those who provide capital or insurance for such transactions, should consider potential national security concerns both in the selection of transaction partners and in structuring proposed transactions. A review by CFIUS is a fact-specific inquiry, and early planning may minimize risk and time delays. We advise clients to consult with counsel before cross-border deals are structured and the parties chosen to assist in navigating around potential roadblocks.

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Investment in social housing demanded for victims of domestic violence – Montreal Gazette

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Alliance MH2 says the province is currently dealing with a dangerous shortage of resources in its second-stage housing — where women and children go once they leave emergency shelters, but before they find permanent housing.

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In the face of an increase in domestic violence during the COVID-19 pandemic, a coalition of community organizations is calling for investment in social housing in the next provincial budget.

The Front d’action populaire en réaménagement urbain (FRAPRU), a social housing group, and the Alliance des maisons de 2ième étape pour femmes et enfants victimes de violence conjugale (Alliance MH2) said at a press conference Sunday that social housing is “essential” for women victims of domestic violence.

Alliance MH2 said the province is currently dealing with a dangerous shortage of resources in its second-stage housing — where women and children go once they leave emergency shelters, but before they find permanent housing.

The coalition is also calling for the opening of 106 units in second-stage housing — units for which approval is being awaited. The Alliance MH2 said it has been waiting for these new units for the past year and a half — a delay it calls  “ridiculous.”

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According to the coalition, only 66 per cent of women who leave second-stage housing were able to find affordable housing. FRAPRU is demanding the construction of 50,000 social housing units in the next five years.

From 2019 to 2020 alone, 75 per cent of requests for accommodation in second-stage housing in Alliance MH2 shelters in Montreal were refused and 37 per cent in other regions, the coalition said; some regions are not served at all.

It has been nearly three years since the provincial government tabled a strategic plan to combat domestic violence and develop a network of shelters, said Gaëlle Fedida, political coordinator of Alliance MH2. “It is time to act.”

Céline Magontier, who is in charge of women’s issues at FRAPRU, said “needs continue to grow with the shortage of social housing, the pandemic, the insecurity of Quebec society and, even more so, Quebec women.

“Social housing  is being put into place in dribs and drabs,” she said. “It is unacceptable and (the government) must face up to its responsibilities.”

  1. None

    Free legal help line launched for those affected by domestic violence

  2. Togo-born director Gentille M. Assih’s poignant National film Board of Canada documentary is a liberating story of hope and affirmation in the face of abuse.

    Bill Brownstein: NFB doc shines light on domestic abuse in Quebec

  3. Roanna Kitchen cowers during a 2015 performance marking the National Day of Remembrance and Action on Violence Against Women in Belleville, Ont.

    Quebec women’s shelters call on men to help end domestic violence

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TFSA Investors: North America’s Best Growth Investment – The Motley Fool Canada

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Exchange Income (TSX:EIF) is a diversified, acquisition-oriented corporation focused on opportunities in aerospace, aviation services, equipment, and manufacturing. The business plan of the company is to invest in profitable, well-established companies with strong cash flows operating in specialized markets.

Attractive valuation

The company has a price-to-earnings ratio of 13.62, price-to-book ratio of 2.08, dividend yield of 5.53%, and market capitalization of $1.43 billion. Debt is very sparingly used, as evidenced by a debt-to-equity ratio of just 1.77. The company has excellent performance metrics with an operating margin of 8.84% and a return on equity of 3.96%.

Effective strategy

The objectives of the company are to provide shareholders with stable and growing dividends and to maximize intrinsic value through on-going active monitoring of the company’s operating subsidiaries. Management continuously monitors and provides support to the subsidiaries that operate autonomously.

Strong aerospace division

The company’s aerospace and aviation division includes a variety of operations within the aerospace and aviation industries. It includes providing scheduled airline, charter service and emergency medical services to communities located in Manitoba, Ontario, and Nunavut. Regional One is focused on supplying regional airline operators around the world with various aftermarket aircraft, engines, and component parts.

Provincial Aerospace provides scheduled airline, charter service and emergency medical services. The division also designs, modifies, maintains and operates custom sensor equipped aircrafts. Provincial Aerospace also provides maritime surveillance and support operations and also offers a full range of pilot flight training services, from private pilot licensing to commercial pilot programs.

Essential manufacturing services

The company’s manufacturing division provides a variety of manufactured goods and related services in several industries and geographic markets throughout North America. Quest Windows is a manufacturer of an advanced unitized window wall system used primarily in high-rise multi-family residential projects in North America. WesTower is focused on the engineering, design, manufacturing, and construction of communication infrastructure and provision of technical services. Ben Machine is a manufacturer of precision parts and components primarily used in the aerospace and defence sector.

LV Control is an electrical and control systems integrator focused on the agricultural material handling segment. WBM manufactures specialized heavy-duty pressure washing and steam systems, commercial water recycling systems, and custom tanks for the transportation of various products, primarily oil, gasoline, and water. Overlanders manufactures precision sheet metal and tubular products.

Sustainable growth

The company is a diversified, acquisition-oriented corporation focused on opportunities in aerospace, aviation services and equipment, and manufacturing. Exchange Income retains the key management personnel following acquisitions and have them own an equity interest in the company. Management invests in profitable, family-owned businesses with strong cash flows that operate in specialized markets.

In addition to having a strong acquisition strategy, the company has oversight and focuses on the generation of organic growth. Organic growth opportunities come in the form of expanding operations for existing businesses or by investing capital into new equipment and facilities for new customers. The company assesses organic growth opportunities with similar criteria as it does for acquisitions to achieve accretive returns on the capital required.

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Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

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