Displaying items by tag: diversification

The highly anticipated launch of Bitcoin exchange-traded funds (ETFs) in early January was met with a wave of excitement, with investors eager to gain exposure to this burgeoning asset class. However, their enthusiasm was quickly dampened as Bitcoin's price took a hit, dropping nearly 13% in the following days.

Despite the rocky start, a sense of cautious optimism has returned to the ETF space. Bitcoin's recent price surge has reignited investor interest, fueling a significant increase in inflows into these funds. CoinShares, a leading crypto asset management firm, reported (02/19/24) a record-breaking $2.4 billion flowing into Bitcoin ETFs last week, representing a remarkable turnaround.

This renewed demand presents a unique challenge for financial advisors. With clients increasingly inquiring about the potential role of Bitcoin ETFs in their portfolios, advisors need to navigate the complex landscape of this new asset class. While these ETFs offer a convenient way to gain exposure to Bitcoin, their inherent volatility demands careful consideration. Unlike traditional investment options, Bitcoin exhibits significant price fluctuations, making it a riskier proposition for many investors.

Finsum: Bitcoin ETFs got off to a rocky start in January, but flows into these funds are recovering remarkably as the cryptocurrency’s price soars.

One consequence of the outperformance of alternative assets in recent years is increasing democratization of the asset class. According to BNY Mellon, this trend is being driven by the need for higher long-term returns given longer life expectancies. Many governments, around the world, are changing guidelines to increase access to these investment options. 

Increasing access to alternative investments also fits with many governments’ ESG objectives. In turn, alternative asset managers are also working to structure their products to appeal to a different market.

The bank also recommends considering offering alternatives in retirement plans. Until recently, investing in alternative assets like private equity, private real estate, and hedge funds were limited to institutional and ultra-high net-worth investors. 

In the past couple of years, alternative assets have delivered positive returns in an environment where both fixed income and equities have struggled amid a hawkish Federal Reserve and raging inflation. Ideally, the asset class would lead to more resilient portfolios by reducing volatility and delivering non-correlated returns. 

Some drawbacks are increased complexity, higher costs, and reduced liquidity. The bank also adds that investors need to be educated about alternative investments in order to fully understand these products and take advantage of their benefits. 

Finsum: BNY Mellon sees continued inflows into alternative assets due to strong performance in recent years. It sees increasing democratization of the space and potentially even the inclusion of alternative investments in retirement plans. 

For investors with unhurried time horizons, patience holds untapped potential. Unburdened by short-term needs, they can explore long-term investments and cultivate portfolio diversification beyond conventional assets. Traditionally, accessing alternative strategies like private equity or direct ownership meant navigating high minimums and limited accessibility.

Enter interval funds, a unique bridge between open-ended and closed-end structures. Unlike exchange-traded closed-end funds, interval funds offer periodic redemption windows, providing measured liquidity while pursuing less-liquid assets. This opens doors to previously exclusive (and sometimes higher risk) strategies, such as real estate investments, infrastructure assets, and private credit.

By incorporating these diverse allocations, their advisors can enhance portfolio resilience and reduce correlation to traditional assets, bolstering overall risk management. Additionally, interval funds often carry lower minimums compared to direct alternatives, democratizing access for a broader investor base.

Naturally, interval funds come with unique considerations. Redemptions occur only during predefined windows, necessitating careful planning. Shares may trade above or below net asset value, impacting entry and exit points. Also, advisors and investors should carefully consider any fund’s management fee, complexity, and performance-tracking aspects during their vetting process.

Ultimately, interval funds offer a valuable tool for advisors to unlock diversification for clients with long-term investing horizons.

Finsum: Find out how financial advisors can take advantage of their clients’ longer time horizons by using interval funds to provide greater diversification. 

Interest in alternative assets continues to grow. For many, it’s become a core part of their portfolio along with equities and bonds based on the theory that it can increase diversification, reduce risk, and deliver higher returns in high inflation scenarios. 

In response, asset managers are introducing new products at a fevered pace. Examples include bitcoin ETFs, private credit, and infrastructure funds. Advisors have the task of figuring out which of these products will help their clients and become a part of their allocations. 

Some important considerations are properly explained to clients that many alternative investments mean sacrificing liquidity for a multiyear period and are only justified if investors are willing to hold for the long term. Further, focusing on returns is not the right metric, instead these products are more about dampening portfolio volatility and providing a source of non-correlated returns. 

Therefore, the biggest impediment for more adoption of alternatives is education. Many might not have a deep understanding of these strategies and have varying risk tolerances. Advisors should consider allocations to alternatives on a case-by-case basis and also gradually increase exposure levels to gauge comfort levels. 

Finsum: There is an explosion of alternative investment options available to advisors. Here are some tips on how to navigate this expanding landscape.

JPMorgan issued its 2024 outlook for alternative investments. Overall, it sees continued growth for the asset class especially as economic and financial uncertainty remain elevated due to inflation, tight monetary policy, a decelerating global economy, geopolitical risks, and volatility in financial markets. 

According to Anton Pil, the Global Head of Alternatives for JPMorgan Asset Management, alternatives offer investors a means to diversify traditional portfolios especially as stocks and bonds have been increasingly correlated in recent years. It can also help to reduce volatility, increase income, provide protection against inflation, and boost returns on an absolute and risk-adjusted basis.

It notes some key growth drivers for the asset class in the coming year. One of the consequences of tighter monetary policy has been a slowdown in private market activity which has impacted many alternative assets. This has led to attractive valuations in some areas that could have upside especially in the event that the Fed meaningfully eases policy. 

Another catalyst for alternative investments is simply that access to these investments continues to increase due to technology and more awareness. Finally, traditional portfolios have failed to provide adequate diversification in recent years. In contrast, alternative investments were a source of outperformance and diversification during this period.  

Finsum: JPMorgan is bullish on alternative investments for 2024. It sees major growth drivers as increasing access, the need for diversification, and an improvement in financial conditions.