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.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
