Alternatives Have Their Moment
2021 has already proven to be a shocking year for investors. We saw a massive influx of day traders into the stock market, kudos to Reddit’s WallStreetBets and social media influences like Elon Musk’s “Gamestonk” tweet, instigating a trading frenzy incurring $1.9 Billion in losses for short sellers in one day. A recent sell of a blockchain backed jPEG file just became the 3rd most expensive piece of art ever purchased, and from it a new investment acronym, NFTs, earned its place in the mainstream.
The modern age of investing is here, and for traditional investors it seems reliable alpha opportunities are becoming harder to find.
Bonds are slipping
Bonds no longer offer the same degree of protection and income as before. Bond yields are rising (because investors are selling) and fall short in YOY comparison. So why the sell out? The Recovery Thesis tells us that the rise in bond yields is a signal of strong economic growth and the Fed has forecasted around 5-6% growth this year. Investors are ready to pull from the safe-haven of Treasuries and redeploy in higher yielding assets.
Private Credit & Direct Lending Opportunities
Smaller companies seeking capital increasingly turn to private sources finding less arduous regulation, wider spreads, and attractive documentation standards. Hedge funds that invest in leveraged loans can offer investors income with attractive yield levels, sitting higher in the capital stack than unsecured debt and equities. Offering a yield greater than investment grade bonds involve a level of risk. How the funds manage risk is a top priority of this investment class.
Swerving Exposure
Hedge funds manage to “zig” when the market “zags”. Managers aim to take advantage of market dispersion, offering portfolio exposures often uncorrelated with the broad market. As the global stock markets experienced their fastest decline on record last year, many funds posted positive returns. By focusing on loans backed by fixed income, managers can hedge against market volatility.
High Performers During Stress
Private investments generate positive annualized returns over a multi-year time horizon, even in periods of market stress. During the worst 5-year annualized performance from 1995-2019 global equities (MSCI World index) returned -5.7% while private markets generated 2.4% and 5.4% respectively.[1]
Tradeoffs
-Investors in private equity and real estate sacrifice liquidity
-Hedge funds often charge higher fees…but also tend to produce more consistent alpha
-Not all managers are created equal; due diligence and understanding the nature of the investment is critical. Take a deep dive into underlying assets and market trends.
Mobility Trust's Alternative Investment Solution
The Mobility Trust group is a non bank financial institution. Our investment fund employs best in class risk management processes and procedures and incorporates ESG strategies while servicing a fiercely loyal affinity audience. We maintain consistent returns with our sustainable, forward facing credit servicing model. Reach out to our investor relations team today to learn more about our alternative investment solutions.
Email: info@mobilitytrust.com
(Disclaimer: The author is not a financial advisor. The use of this website does not constitute the rendering of financial advice by the author to the reader. It is solely for informational purposes. Please visit the privacy policy for a full list of disclosures. )
[1] Hamilton Lane Data, Cobalt, Bloomberg Financial L.P. As of December 31, 2020