benefits of alternative investment in a portfolio

Equity Market declines in Perspective

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Far from Unprecedented: Nine Selloffs Like this, and Nine Rebounds.

The Bloomberg article has much prettier graphs than I can do, but I can provide the view from a wonderful ski field in New Zealand, in the spirit of the Winter Olympics, Treble Cone near Wanaka.

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So, since the beginning of the bull equity market run in 2009 there have been nine significant declines in global equities. On each occasion global equity markets have come back.

The nine episodes are outlined in the Table below. They make for interesting reading and are distant memories.

Now of course we maybe only partway through the decline of the current “correction” and it could be different this time i.e. no bounce

 

Market movements are in relation to the US S&P 500 Index.

Date Level of Decline Trigger
January 2016 -11% of three weeks Concerns over economic slowdown and mounting Chinese debt
August 2015 -11% over six sessions China’s shock devaluation of the Yuan
October 2014 -5.0% over week Spread of Ebola virus, concern over end of US Quantitative Easing and tensions in the Middle East
January 2014 -3.6% over the month Emerging markets equities and currencies sold down
October – November 2012 -7.2% US Election uncertainty between Obama and Romney
March – June 2012 ~-10.0% US Federal Reserve indicating it will likely hold back on further monetary Policy easing e.g. Quantitative Easing
July – August 2011 -17% US Credit downgrade and weaker than expected jobs report, Greece
January 2010 -8% Market correction uncertainty as to global growth outlook, particularly Europe
April – July 2010 -16% Similar reasons and the infamous flash crash
January 2018 -10.1% Rising longer dated interest rates, inflation concerns, Fed tightening, negative feedback loop of short volatility Products

 

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Global sharemarkets fall sharply – what to do?

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The run of sharemarket records has been broken.

After reaching all-time highs and experiencing the longest period in history without a decline in value of more than 5%, US equity markets have fallen the most since 2011, the most in 6 ½ years.

The sell-off comes after: a record start to the year, +5.6% (the market has retraced all of January’s gains), a strong US employment report on Friday, including a larger than expected pick-up in wage growth, and rising US Treasury yields over the previous days.

Combined the fear of greater than expected increases in interest rates by the US Federal Reserve (Fed)), high market valuations, and an over brought market (technicals) sentiment has turned quickly, leading to the sharp fall in the market over recent days. More may be likely – who really knows?

Nevertheless, a pull-back in the market has been long overdue and the underlying fundamentals remain good e.g. global synchronised growth

What to do in times like this? Listen to your investment advisor, ensure you have a truly diversified portfolio, and take a longer term approach.

This article is timely given the recent market volatility.

It highlights Goal-Based Investing and 4 other trends to look out for in 2018.

I hope the people that are advising you are across these topics, in particular:

  • Goal Based investing – this is key focus on this Blog site. This is fundamental.  The focus on how much growth assets one should have, a return and benchmark focus, and target date type funds may not deliver desired outcomes to meet retirement needs;
  • Responsible Investing. A responsible investing and ESG framework / policy is important for sustainable investment outcomes;
  • Uncertainty – well that has certainly risen over the last couple of days! Nevertheless, it was in the background given the very low level of interest rates and the high valuation of equities, the US in particular. The article points to the increasing allocations to alternatives as a means to truly diversify portfolios and make them more robust in the face of market uncertainty and volatility.
  • It is likely that ETFs could play an important role in meeting investment objectives

 

Bitcoin has lost its shine!

 

 

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Adding Alternatives to an Investment Portfolio – Part 3; Investing Like an Endowment Fund

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Part 3 of a series of articles about adding / increasing Alternatives in a Portfolio.

The attached article is a recently published article via the CAIA: Investing Like the Harvard and Yale Endowment Funds.

My previous Posts have outlined the potential benefits of adding Alternatives to a portfolio. This article provides some evidence of the benefits of adding alternatives to a portfolio.

The Endowment Fund success has come from having more than just absolute return funds i.e. hedge fund alternative strategies, but also exposure to real assets have played a part, including a Private Equity exposure. Many Australian Super Funds have benefited from their exposure to unlisted infrastructure and Property.

New Zealand Portfolios generally lack exposure to real assets, private equity, absolute return funds, and alternative strategies.

The Top performing Endowment Funds have benefited from “true diversification”, they have benefited from their allocation to alternative asset classes.

“Their long term investment strategy has prevailed to the extent that long term total and risk adjusted returns remain superior to those of traditional portfolios.”

 

CAIA Investing like an endowment

 

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