With the recent volatility in equity markets, and the ASX All Ords YTD September 22 being down -12.74% (source: https://www.marketindex.com.au/all-ordinaries) – now is a great time to consider and discuss alternative investments. Alternative investments and strategies can often have low, or even no correlation to traditional markets and can offer investors access to a broader set of opportunities. In short, investing in alternatives can assist in providing greater portfolio diversification for those willing to expand beyond traditional investments. During times of significant volatility and uncertainty, this can prove to be especially prudent.
A global shakeout in growth stocks and broad market falls triggered by the end to decades long easy money policies as central banks combat rising inflation have delivered this volatility and uncertainty in recent times. Many investors had a good time of it last year as easy money policies and COVID-19 stimulus fuelled a 17% return for the S&P ASX 200 index and house price gains averaging circa 25% around the country. It’s important to remember that there are different ways to engage with markets beyond the more traditional buying or selling of individual securities and assets. Alternatives can broaden an investors portfolio and add much needed diversification. When traditional investments seem lacklustre and maybe even scary via extensive negative media reporting and herd mentality, alternatives can offer additional opportunities by tapping into specialised marketplaces beyond stocks, bonds and cash. This may include private markets, and other investments like commodities, real estate and infrastructure.
During times of market uncertainty, alternative strategies that are not in highly liquid investment vehicles may be less likely to be forced to sell quickly and at a lower price than their more liquid counterparts, which in some cases may need to raise cash to meet redemption requests from investors. At the same time, they may be positioned to take advantage of attractive buying opportunities that are discounted because of market volatility.
While its generally accepted that COVID-19 crisis is behind us, ironically the end of this crisis came with the wind up of significant market stimulus that has now rattled markets and investor confidence, uncertainty for what’s yet to come may be as overwhelming as the crisis itself. Now more than ever, investors may need to consider all of their options when building a portfolio for their future. This may mean a number of things, including: boosting diversification, investing in new or different markets and taking advantage of unique opportunities created by current market volatility.
Being prepared to weather a post-COVID environment – which now feels more uncertain than the pandemic period itself – by considering broader diversification and with a market offensive mindset may be a valuable strategy to consider.