More advisors turn to alternative investments to further diversify their clients in volatile market

More advisors turn to alternative investments to further diversify their clients in volatile market


Marko Geber | DigitalVision | Getty Images

After battling downturns in the stock and bond markets, more financial advisors looking to further diversify their clients are turning to alternative investments, according to a recent survey from Cerulli Associates.

Falling outside of traditional asset classes, alternative investments are typically added to portfolios for more diversification, income and the possibility of higher returns. 

The report, surveying 100 advisors during the first half of 2022, found average alternative allocations of 14.5%, with advisors aiming to boost percentages to 17.5% in two years. 

More from Personal Finance:
The wealthy now have more time to avoid estate taxes
Here are 6 strategies to recession-proof your finances at any age
What the Fed’s next major interest rate hike means for you

While average industry allocations for alternatives and commodities may be closer to 10%, Cerulli sees a “Goldilocks moment” for these assets amid demand for income, higher returns and volatility protection as more products become available.

Almost 70% of respondents said the top reason for alternative allocations was to “reduce exposure to public markets,” and 66% aimed for “volatility dampening” and “downside risk protection,” according to the report. Other top reasons for alternatives were income generation, diversification and growth.  

Where advisors are investing

Alternative investments may fall into four categories: hedge funds, private equity, “real assets” like real estate or commodities, and pre-packaged investments known as “structured products.”

“We have been using alternatives for a while,” said Ashton Lawrence, a certified financial planner with Goldfinch Wealth Management in Greenville, South Carolina, whose firm has used assets focused on events and company mergers, along with funds offering downside protection through put options. 

“When interest rates were extremely low, we wanted to have something that would anchor the portfolio, but not be tied to interest rates,” he said.

Scott Bishop, a Houston-based CFP and executive director of wealth solutions at Avidian Wealth Solutions, said his firm used private equity, private debt, some hedge funds and some “smaller investments” that are less attractive to Wall Street banks.

The most popular alternative assets are so-called liquid alternative mutual funds and exchange-traded funds, offering hedge fund-like strategies to everyday investors, according to the Cerulli survey, along with non-traded real estate investment trusts, that aren’t bought and sold on a stock exchange.

The risks of alternative investing

Gerenme | E+ | Getty Images

With a range of assets falling under the alternative investing umbrella, it’s easy to misunderstand what you own and what is designed to do, Lawrence said.

Before diving into alternative investments, you need a clear understanding of the underlying asset and the environment where it may perform the best. Otherwise, you may have mismatching expectations, he said.

“A hammer is a tool and a spatula is a tool,” he said. “But if I take a hammer and try to flip pancakes in the kitchen, I’m going to have a bad experience.”



Source

Government shutdown means opportune timing for Neptune Flood IPO
Business

Government shutdown means opportune timing for Neptune Flood IPO

The timing of Neptune Insurance Holdings’ IPO couldn’t be more opportune. Neptune, the nation’s largest private flood insurance, debuts on the New York Stock Exchange Wednesday under the ticker symbol “NP.” The company sold more than 18 millions shares in its initial public offering at $20 apiece. The company’s first trade comes just as the […]

Read More
States sue Zillow, Redfin for alleged antitrust violation in online rental housing
Business

States sue Zillow, Redfin for alleged antitrust violation in online rental housing

Rafael Henrique | Lightrocket | Getty Images Attorneys general from five states sued Zillow and Redfin on Wednesday, alleging the companies schemed to stop competition in the online housing rental market. The lawsuit follows a similar one filed by the Federal Trade Commission on Tuesday. Officials from New York, Arizona, Connecticut, Washington and Virginia jointly […]

Read More
EVs, big SUVs drive Ford Q3 U.S. sales up 8.2%
Business

EVs, big SUVs drive Ford Q3 U.S. sales up 8.2%

Ford Mustang Mach-E and F-150 Lightning on display at the New York International Auto Show on March 28, 2024. Danielle DeVries | CNBC DETROIT – Sales of electric vehicles and large SUVs drove Ford Motor‘s third-quarter sales up by 8.2%, the Detroit automaker reported Wednesday. Ford said sales of all-electric vehicles increased by 30.2% during the […]

Read More