Michael Field, GM: Investments at Fedgroup

In today’s bear market, where traditional investment strategies fall short of expectations, dismissing alternative assets before properly evaluating their worth seems nonsensical.

No matter how you slice it, you simply can’t get true diversification from a collection of investments that all draw from the same diminishing pool of JSE equities and bonds. And the volatile performance of these over the last few years proves that.

These days, to meet an investor’s need for capital security and long-term growth, a balanced portfolio needs to contain a carefully curated mix of different asset classes that react in different ways to market movements. If all your investments behave the same, what’s to shield you from turbulent markets?

It’s easily achieved by incorporating an appropriate selection of both traditional investments and alternative investments. That way, risk exposure is better spread across the portfolio because the performance of the alternative assets is not linked to market sentiment.  

Alternative isn’t a dirty word

Think of the word ‘alternative’ and what comes to mind? If it’s someone with vegan sandals and a goatee, that could explain the reluctance we see among some investors to take a serious look at alternative investments.  

No judgement here about lifestyle choices. To each their own (though the jury is out on the edible footwear). However, there is a serious point to be made about the instinctive distrust of anything that falls outside the familiar. And, in the case of alternative investments, the bad rap they get simply for being less conventional and, frankly, misunderstood.  

Not only does it do the alternative asset class a disservice to unfairly bundle everything that isn’t a listed equity or bond into one basket, but it also implies that anything with an ‘alternative’ tag is inherently sketchy and should be treated with distrust.

As is the nature of life, no two things are exactly the same. Alternative assets account for most of the options available in the market, outside of bonds and equities. With such an array of options to choose from, it stands to reason that some of these assets carry more risk than others. Due diligence is always key and the more intangible the assets – like hedge funds, crypto and other unique trading items – the greater the risk appetite required.

Our collective view of alternative assets definitely needs to be reassessed. After all, where do you think those former-JSE-listed assets go when retired from the stock exchange?

By their very nature, alternative assets offer investors a way to smooth their investment journeys because they aren’t prone to the same kind of extreme fluctuations as assets that are linked to the stock market.

At Fedgroup, we’re not championing alternatives merely for the sake of it and we’re not in the business of recommending assets in any class that can cost people their hard-earned savings. We consciously look at incorporating alternative assets that can provide the right return characteristics for investors, and an important factor to consider is the ability to deliver a smoother returns curve. So, you can believe it when we say we’re excited by the array of alternatives that meet our immoveable criteria for stability and security.

Getting the balance right

Incorporating alternatives and getting the mix of investments right gives you breathing room in your portfolio to explore interesting opportunities over the course of your investment journey, without sacrificing the returns of your entire portfolio.

So, which alternative assets have the potential to deliver these highly sought-after stable returns? Ventures in the sustainability sector are a good starting point. Especially those in renewable energy and agriculture, where investors have an opportunity to grow their own wealth while also making a positive contribution to our planet. 

There’s also the broader benefit of  helping to address key socio-economic factors such as job creation, food security, and energy production, which in turn have a positive impact on the ability of these assets to generate returns. People need to work and eat, and they need electricity. Investments into these sectors therefore will deliver a return as these sectors continue to grow.

A diverse mix of alternatives like these, along with traditional investments, can help investors to mitigate risk, by bringing balance to portfolios that have been sucker-punched by market sentiment and fluctuating market cycles.

Although more and more investors are getting the message, there are still too many whose portfolios exclude alternatives because they, or their financial advisors, remain blinkered to their potential.

At Fedgroup, we’ll keep banging the drum because, the way we see it, alternatives are fast becoming mainstream.  

For more information, visit the Fedgroup website.

Fedgroup is a specialist financial services provider with a legacy of putting people before short-term profit. For over 30 years, we’ve delivered market-leading financial solutions that not only enhance value for our clients, but remain straightforward, transparent and easy to understand.